While day trading successfully is always going to involve a little luck, that doesn’t mean there is nothing you can do to improve your averages. Consider the following tips and tricks to help you end every day further in the black than when you started.
Choosing the right trades
A successful trade is always going to be built on a measured approach. To ensure this is the case you are going to want to begin by choosing the type of stocks that align with your goals as well as your temperament. Furthermore, you are going to want to take any external knowledge you might have into account when choosing the right stocks to focus on. As an example, if you were previously in the medical field then stocks based on pharmaceutical companies might be a good choice. Regardless, it is important to always take the following three main aspects of every trade into account before you make any decisions.
Timeframe: First and foremost, you are always going to want to trade in a timeframe that you are comfortable with. Doing otherwise will simply lead to scenarios where you are not at your best because you are impatient or just plain nervous. If you are still trying to improve your overall trade percentage you will likely want to stick to the 5-minute charts until you can be truly comfortable dealing with the potential for risk that holding stocks overnight can cause. You will also need to consider if you prefer micromanaging trades all day every day or prefer doing all your research over the weekend to pursue weekly trades come Monday morning. Micromanaging trades leads to short-term gains while weekly trades produce long-term gains.
Trading tactics: When it comes to choosing a methodology to use while trading, it is important to focus on what works for you instead of bouncing around based on what is popular in the moment. It is important to remember that every trader is going to have good days and bad days and if you can find a methodology that is successful at least 60 percent of the time then you are well on your way to success. Switching your tactics constantly is only going to skew your stats so you won’t be able to determine the true cause of either your successes or your failures. What’s worse, changing constantly will make it difficult for you to learn the intricacies of the methodologies you use, meaning they will be less effective in even more scenarios.
Tools of the trade: Much like methodologies, it is important to find a few trading instruments that work for you and focus on making the most of them. This is preferable to using a little bit of everything as you will be able to more closely tailor what you use to match your trading style. The best way to determine what is going to be useful to your style is by focusing on instruments that match the timeframes you frequent most often.
Attributes
There are several different attributes that all day traders should strive to embody. While not everyone will naturally be able to access them from the start, they can all be improved with practice.
Patience: After you have found a trade that you think is going to be fruitful, it is important to exhibit patience and find the perfect moment to pull the trigger. This is why it is useful to always determine your entry and exit points beforehand, so that there is less of a chance of emotion getting in the way. Additionally, if the trade doesn’t reach those numbers then you need to have the patience to wait for a better option to come along. If you decide to chase the potential for profit by altering your exit and entry points on the fly then all you are going to do is to skew the effectiveness of your plan. Once this occurs you lose regardless of the outcome as even if you profit from the sudden change you are reinforcing bad habits that will ultimately cause you harm in the long run.
Belief: Having belief in the trading plan or system that you have created is crucial when it comes to day trading because no plan is flawless. Day trading plans only prove successful when used reliably in the long term and swapping things around constantly is going to skew the percentages against you. Remember, a good plan or system gives you an edge, otherwise you are essentially just gambling and there are more effective ways to gamble than with the stock market. Believe in yourself and your system and you will see greater profits overall.
Objectivity: It is important to never get too attached to a given stock and always approach every trade from a point of objectivity. Losing this objectivity can cause you to make mistakes like doubling down on a stock that has gone out of the money or staying in past the logical exit point. The same goes for listening to outside sources. Once you have committed to a given trade the only source you will want to listen to is your trading plan, everything else may as well be white noise. Each trade should be analyzed based on its relative merits, if you do so then you should trust yourself and let the rest take care of itself.
Expectations: Believing in yourself is an important part of day trading successfully but having measured expectations is crucial as well. Above all you need to have a realistic understanding of what your profits are likely to be before you start any new trade. Having realistic expectations in this way will help to prevent you from letting emotions get the better of you and lead to more reliable trades overall. Keeping your expectations in check means understanding the risk and reward of every trade. Remember, short term trades are more likely to lead to small, safe gains while long term trades are riskier and can end in greater gains.
Motivations: It is important to understand your own motivations in order to be true to yourself and your trading style. It is also important to understand the various motivations that different commodity markets have if you hope to trade in them successfully. In order to determine the current motivations of the commodities you favor, the first thing you will want to do is to consider the major players in the market in question. With that in mind, you can then watch the commodities themselves and determine how they are moving and why. Once you are familiar with what is currently happening you can then compare that to the historical movement. When taken as a whole you can then determine how the moves the major players make affect changing market conditions and predict future movement from there.
Putting thoughts into action
Keeping everything in mind at all times can be challenging, if you never put what you have learned into practice, however, then you will never grow as a trader. What’s worse, you will never turn a reliable profit. Once you know what you are doing you will then want to keep track of your trades as soon as they begin and don’t be afraid to bail on a trade when it suddenly goes south. Remember, a small loss now is always preferable to a bigger loss in the future. Additionally, it is important to keep in mind that there will not always be a worthwhile trade to be made. Just because you are a day trader doesn’t mean you need to be trading every second of every day.
Learning the most intricate parts of the markets you favor isn’t something that can be taught, it can only be learned with practice. What’s more, sometimes mood is going to skew unexpectedly and through everything out the window for a time. 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.