Our 8 foundations to successful Day Trading
When it comes to the world of day trading, the sad fact of the matter is that the vast majority of people end up not making any significant profits at all.
What’s the reason for this? Well, you might be thinking that it’s just bad luck, and the traders who do make profits on a consistent basis are lucky? Or maybe you think that winning traders have insider information that most people can’t get access to?
While there is definitely an element of luck and getting inside information in day trading, the truth of the matter is that there are much more important factors at play. We are going to call them the 8 laws of successful day trading, and if you want to get profitable, then you should pay very careful attention to the following words.
Focus on the basics
It might not seem very glamorous, and even sounds a little like hard work, but if you are ever going to follow in the footsteps of successful day traders then you must learn the basics.
Not only should you learn them, but you must make it a habit to keep referring to the basics on a regular basis, because after all, successful day trading is all about the basics. You won’t find many elite traders using complicated systems.
Control your emotions
The 2nd law of successful day trading is all about your emotions. You make a winning trade and you’re as high as a kite, then the next day things go wrong and you fall into a depression. It’s this yo-yo effect that keep most traders broke, because they are always acting on high emotion.
Day trading requires clarity of thought, so you can make accurate assessments about the market, and ultimately make winning trades. Being on a constant emotional rollercoaster is not a good place to be.
Find your market
The key to getting extremely good at anything in life is to know it well. If you want to get good at basketball, then you spend hours throwing a ball into a hoop, and the same thing applies to day trading.
That’s why it’s a good idea to find one market that interests you, and then focus solely on that market at the exclusion of everything else. Do this for long enough, and you will become an expert in that market, which can only be a good thing.
If you are constantly bouncing around from market to market, then you will never become good enough to make consistent profits in day trading. Your knowledge base will be spread very thin, which makes it hard to identify winning trades.
Treating it as a business
Hobbies are great, and you should definitely have a few. However, day trading is not hobby, unless you don’t mind losing money. Even if you are only trading in the markets on a part-time basis, you should still treat everything that you do as a business.
This means writing a business plan, determining your short and long term goals, getting an accountant, having a daily schedule, and setting up a home office where you can’t be disturbed.
Knowing when to walk away
The 5th law of successful day trading is knowing when to walk away. The temptation to chase losses is always there and everybody falls under the spell once in a while, the main problem is when this type of behaviour becomes a regular pattern.
Many beginners usually have a big problem with this, as they get in a constant cycle of trying to make up money they have just lost. Of course, this is never a good idea because it’s hard to think straight when you are chasing after something.
Instead, it’s a massive advantage to be able to know when you should be walking away. Tomorrow is a new day, and things will probably be a lot different. Get out while your losses are still small.
Dealing with risk
Not everybody likes risk. In fact, there are many people who spend their entire lives avoiding any type of risk altogether. If you are one of theses people, then day trading is probably not the business for you, because at the end of the day this game is full of risk all the time.
With this in mind, it makes sense that should get used to becoming more comfortable with taking risks on a daily basis. This doesn’t mean you should take silly risks in the markets, as this will jeopardise your whole day trading strategy, but a small amount of risk with every trade is usually required.
Making quick decisions
Because most trades are completed over the course of the day, and the day trading markets can be volatile at the best of times, it is imperative that you get used to making quick decisions in a matter of minutes…and even seconds.
This game is not like normal investing, where you have months to carefully analyse your stocks and then decide on the best course of action. Many day traders would love that kind of luxury, but unfortunately it just isn’t there.
Making quick decisions means you won’t get things right all the time, but that’s all part of day trading, and the trick is to get things right the majority of the time…not every time.
The 8th and final law of day trading is to be always educating yourself. Education comes in many forms, whether it be from a book, a newspaper, a news program, online news feeds, a forum, a blog, or a newsletter, you should always be on the lookout for more knowledge.
Just make sure that you don’t end up spending the majority of your time learning and barely ever taking any action.
Sure, it’s great to be educated about what you’re doing, but you also need to get out there and actually start trading in the markets. The day trading world is full of people who know everything but never actually do anything with that information.