Essentials of Successful Day Trading

Day trading refers to trading, i.e., buying and selling the stocks within the same trading day in such a way that all trading positions are generally completed before the close of the market on the trading day. Day trading is opposite to after-hours trading which allows the investors to buy and sell shares and keep them for longer periods.

Earlier, the day trading was done exclusively by the large financial companies, banks and professional investors. Of late, it has gained acceptance from the casual investors due to the advancement of trading technologies, changes in legislation and the advent of the computers and the internet.

Day trading is a full time business with possibilities of profits and losses. As a day trader, you need to nurture a right attitude towards profits and losses. An occasional loss should not prove depressive enough to make you lose your heart altogether and deter you from continuing with your trades.

According to Bruce Kovner, if you personalize losses, you cannot trade. As a good trader you should not have any ego. You must learn to swallow your pride and get out of the losses. You must gain the strength to take your losses without wavering in your determination to win. This can be done when you eliminate fear, doubt and hesitation from your mind as these negative thoughts may prevent you from taking a balanced approach. Eliminate the emotions that can vitiate the chances of your success.

On the other hand, a good profit from trading should not cause so much euphoria that you lose sight of your focus and take unnecessary investment risks that defy common sense. At the same time you must always be ready to learn from your mistakes and be open to constructive suggestions.

It is also recommended in this context that you should maintain a journal of your important day trading events detailing reasons about profits and losses. You should try to analyze which strategy won you profits and what mistakes led to losses. Mistakes are more likely to occur while making the technical analysis of the charts and graphs. Your own journal can become a handy reference material to guide you through your future day trading problems. It will also help you to avoid mistakes and develop your winning strategies.

It is very important to learn the art of risk management in day trading. Risk management can make a lot of difference between success and failure. You must control your emotions and urges and ensure that you are around to trade tomorrow.

Great day traders are great profit and risk managers. It is always advisable to take small and affordable risks. It is generally recommended that you should risk % to 1% per position. In any case the risk should not exceed 2% of your investment. The idea is that you should be able to trade the next day as well, which would not be possible, if you blow out most part of your capital today. If you do not have any money to trade the next day, how are you going to earn your living or make profits? So your each position should be so small that you can give a damn to your losses. Suppose you are investing a total of $20,000, a loss of, say, % will not amount to too much.

You should develop a winning mindset based on the mental/emotional rules of a winning trader. Develop a detached attitude towards trading and reduce the stress that is usually associated with gains and losses in stock trading. This will enable you to travel your path with confidence.

Stock trading remains unpredictable despite the advancement in research and analysis techniques. It is somewhat like a game of roulette. Each flip is independent of the other. If you bet on black and win, it does not follow that black would win you again. Your next trade has nothing to do with your previous one. Each stock has its own features and has to be analyzed in its own perspective within its own parameters.

The stock trading market is an ever-changing entity. It presents unique challenges in different scenarios. If you want to succeed in day trading you have to develop an intuition in dealing with the unprecedented financial situations every day. You, therefore, must develop an ability to adjust to the changing market circumstances.

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Day Trading - Getting Ahead Early

When you turn on your computer in preparation for the trading day, the one and only thing you should care about is finishing up on the day. I personally do not subscribe to the idea of only trade the charts and everything will take care of themselves. You have to make a conscious decision of whether you want to finish up or down for the day. You are the only person that controls if this becomes a thought or a reality.

10-Run Rule
My mom recently sent me an article from my high school baseball games from my senior year when we won our conference championship. In the clipping it described how we ran through our division dishing out 3 10-run rule spankings. I thought to myself, every day trader needs a 10 run rule. This 10-run rule is the point you set per day that tells you that the game is over. If you do not know your 10-run rule, a ugly day will turn into a debacle and you are not ready to trade on a professional level.

Take the first pitch
My coach Paul Bernstorf would tell me to work my count. Don't just go out there hacking at every pitch. In day trading, one needs to exercise this same sort of patience. Depending on how actively you trade the market, you will be presented with more than enough trading opportunities. So, take the first pitch, wait to see how the market is trading and how well your system is fairing in the current market environment.

Swing for singles
Whenever you start trading, the first thing you want to do is swing for small gains. Depending on your investment style and timeframe, you need to decide what small gains means to you. For me it is anywhere between .5% and 1.5%. My goal is for every $10,000 I use per trade, to get a minimum of $250 dollars in the bank before 2pm. From this point on I will not risk more than .75% per trade, thus allowing me to make three blunders and still walk away a winner for the day.

Swing for the fences
Once I have my $250 per $10,000 invested safely in the bank, I can now swing for the fences. This does not mean that I let my stops go, but rather when I'm in a winning trade, I look for larger price targets and are willing to give back more of my gains. The power of this is that I'm now allowing my gains from earlier in the day to compound while still ensuring I walk away a winner.

Final Box Score
Day traders make the mistake of always looking to hit the big one, or rather putting on too many trades in one day. Because you are day trading does not mean you can just toss aside common sense rules of how to make money. If you are down $100 dollars and you are in a trade that's up $210, take the money. Get in the black for the day. The worst thing you can do is to not get ahead. What will happen over the course of a month is losing days will make up 20% of the days, winning days 60%, and homerun days another 20%.

Al Hill is the co-founder of mysmp.com (My Stock Market Power) which provides education on all topics finance; including stocks, bonds, options, futures, forex, technical analysis, and more! Please visit http://www.mysmp.com for more free financial educational content.

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