While there is always going to be a little luck associated with day trading, there is still plenty you can do when it comes to improving your averages and maximizing your profits in the long term. The following tips and suggestions are a good place to start when it comes to building a successful day trading career.
Finding the right trades
The first thing you need to remember is that every successful trade is always going to be based around a measured approach. As such, the first thing you are going to want to do is make sure you are trading the types of stocks that not only align with your long-term goals but match up with your temperament as well. Additionally, you will want to utilize any existing knowledge about relevant fields that you may have to lean into a specific type of stock. For example, if you previously worked in manufacturing, then sticking with stocks that are based on companies who deal heavily in manufacturing can give you an edge as you innately understand the ins and outs of those companies which can give you a better idea as to what will cause those stocks to move in unexpected ways.
Regardless of the types of stocks you choose to focus on, there are three key aspects of every trade you are going to want to keep in mind before you pull the trigger.
Timeframe: The most important thing to keep in mind is that you are always going to want to trade in a timeframe that matches up with your state of mind. Trading in a timeframe just because someone else says you should is a great way to end up either nervous or impatient, neither of which is a mindset that is going to help you make any money.
If you are just getting started in day trading then the timeframe you are most likely to be comfortable with is the 5-minute chart. This is a nice middle ground for day traders as the movements it produces will not be as fast as the 1-minute chart nor will you have to expose yourself to the added risks of holding a specific stock overnight. You will also need to experiment with micromanaging trades all day versus doing research during the weekend and placing weekly trades at the start of the trading week. Micromanaging trades tends to lead to gains in the short-term while weekly trades are more likely to produce results in the long-term.
Methodology: When it comes to working with a methodology that works for you, it is important to find something that plays to your own specific strengths and weaknesses as opposed to trying out everything that “experts” say is hot at the moment. Additionally, you are going to want to keep in mind that every trader is going to have bad days as well as good and as long as your trading plan is effective at least 60 percent of the time then you are guaranteed to be successful in the long run as long as you stick to your plan. Switching things up all of the time is only going to skew your results which will make it more difficult for you to determine the true cause of any failures or successes that you come across. Additionally, switching regularly is only going to make it harder to learn the intricacies of your chosen methodology, making you less effective when a difficult to unravel issue arises.
Trade indicators: Additionally, you are going to want to focus on a handful of trade indicators that work for you and master them completely before moving on to something else. This will allow you to find the ones that work best with your trading strategy and your overall trading style. The best place to start is with those that work the best in the timeframes you frequent.
Focus on building these attributes
There are several different attributes that you can work to improve in order to enhance your day trading results. While you may not be an expert at all of these to start, practice makes perfect.
Patience: Early on in your day trading career it may seem as though when you finally come across a given trade that is going to pay out, you need to act on it immediately and then get out as soon as you make a profit to keep things from going sideways. If this is the case then you are likely not fully taking advantage of the trades you find as patience will often lead to better payouts overall. This is why it is important to determine your potential entry and exit points before you jump into a trade so that there is no opportunity for emotion to get in the way of your profits.
What’s more, if the trade doesn’t reach the numbers you were anticipating then it is important to not simply follow through with it anyway. You must have the patience to disregard it and then wait for something better to come along. If you decide to chase the specter of potential profit by changing your predetermined exit and entry points on the fly they all you are going to do is ensure that your plan isn’t as effective as it might otherwise be. After this has happened they you lose in the long-term regardless of the outcome of the individual trade as if it works out then you are promoting bad habits that are sure to do more harm than good in the long run.
Faith: Having faith in your trading plan is crucial when the rubber hits the road and you are staring down a potentially profitable trade. After all, no trading plan is perfect and you are likely to see your plan fail to execute as planned a full 40 percent of the time. As such, you need to believe that the plan you have created is solid, and follow it through exactly, every single time you make a trade, otherwise you are throwing off your odds of success even more. A good plan gives you an edge over the randomness inherent in the market, if you disregard your plan constantly then you are doing little more than gambling and there are always going to be easier ways to gamble than via day trading. Having faith in your system, assuming it is worth believing in, will always lead to greater overall profits.
Objectivity: When trading, especially early on, it can be easy to start to feel a connection to individual stocks. This is a surefire way to lose out, however, as any stock could change directions at any time and you need to be objective enough to know when your time with a given stock is coming to a close. Not keeping an objective mindset can easily cause you to start making harmful mistakes such as doubling down on losing stocks in an effort to recoup your losses or sticking with a specific stock after all indicators point to a long trend moving away from your desired direction in hopes that things will turn around. The same thing can be said when it comes to listening to outside sources.
Once you have committed yourself to a specific stock it is important to ignore everything besides your trading plan and consider it white noise until the trade is completed. Each trade needs to be objectively verified based on its merits in relation to your trading plan, if you do this then you can let the results take care of themselves.
Don’t expect too much: Having the wrong expectations is one of the easiest ways to lose out when it comes to day trading. It is important to believe in both yourself and your plan, but this belief should always be based firmly in reality. Having an unrealistic expectation when it comes to profits is a good way to let your emotions into the trading process which can then easily lead to trading mistakes that you wouldn’t have made if your head was clear. Keeping your expectations realistically in check means having a firm idea of the potential risk and reward that will come along with every trade. It is important to keep in mind that short term trades are more likely to lead to safe but small returns and that long-term trades have a greater margin for error but balance that out with overall greater gains.
Motivation: In order to remain true to yourself regardless of the situation you find yourself in, it is important to understand the motivations you have for trading and how they affect your trading style. It is also important to understand the motivations that inspire the various commodity markets if you want to trade in them successfully.
In order to figure out what motivations are influencing your favorite commodity, the first thing you will need to do is to consider who the major players are in that commodity. Once you know who the major players are you can watch how they trade and determine the reasons behind why they make the trades they do. After you understand how they are likely to move then you can take a look at how things are currently progressing and compare that to the historical data you have gathered. When taken as a whole, this process makes it easier to determine how the major player movement affects the market as a whole which makes it much easier to predict future movements in turn.
Taking action: Keeping everything that is required in mind at all times is a challenge, even for experienced traders. If you never put what you have learned into action, however, then you will never improve as a day trader and, what’s more, you will never profit from it. Once you have made a decision it is important to understand why you made the decision you did and also not to be afraid to bail on a trade that suddenly turns around on you. It is important to keep in mind that a small loss in the present is always preferable to a potentially large loss somewhere down the line. Furthermore, you will want to keep in mind that there are absolutely days that the market isn’t going to be doing much of anything. When this happens, it is perfectly acceptable to simply sit back and wait for more profitable market movement. Other times, something unexpected is going to happen and skew the market in an unexpected direction for a prolonged period of time. Remember, just because you are a day trader doesn’t mean you need to be trading every single second of every day.
Learning the ins and outs of the markets that you favor isn’t something that is going to happen overnight; nor is it something that can really be taught. A true familiarity with the market is only something that can be learned with practice, and lots of it. Ultimately it all comes down to Warren Buffet’s number one rule, “the only hard and fast rule is to never lose money.” Stick to this rule and you can never go wrong.