How To Achieve Day Trading Success
Day Trading success is one of the most challenging aspects of trading. In this tutorial I want to cover some fundamental mistakes beginners make that jeopardize their chance of becoming a successful day trader. After working with hundreds of day traders over the last several years, I put together some basic steps that will increase your odds of generating profits during intraday time frame.
Never Day Trade Without A Plan
Many traders see an opportunity or hear news during the trading day and decide to enter or exit positions based on what they just saw or heard. Day trading is very emotional and the financial markets are the biggest manipulators of these emotions. Your entry and exit rules must be planned well ahead of time.
You also need to have a solid contingency plan if something unexpected occurs during the trading session. Often time’s news or other fundamental announcement can have a major impact on your position, so you need to prepare for every foreseeable situation that may occur.
I’ve seen traders take this a bit too far as well i.e. if the markets are range bound and choppy without any fundamental news on the horizon, I wouldn’t necessarily plan for a 200 point move in the Dow Jones in the middle of the trading day, that’s just being paranoid and is just as bad as under planning.
You would be surprised at how many traders make this fundamental mistake. Each day the market trades at important intraday support and resistance levels. These levels dictate the previous few days short term support and resistance areas as well as price points that are vulnerable to breakouts and pullbacks.
If you don’t believe me just take a look at this intraday chart of the SPY during the last few trading sessions. Each day for several days the resistance level is hitting the upper trend line at the exact projected price level, this is something you should watch out for every day using intraday charts. I use 15 minute bars for stocks and 5 minute bars for other financial markets.
Often times swing traders seeking day trading success find strategies that look good on paper but are impractical or highly difficult to execute under real market conditions. I would estimate that roughly 70% of all strategies that look good on paper won’t work out simply because execution is unrealistic, there’s too much slippage (which is a word that describes a fill price that’s very different than the price you were expecting to get filled at) or the set up occurs so infrequently that waiting for it to occur is like waiting for a UFO to land on your doorsteps.
I fell into this trap myself when I first started out. I found the perfect trading method that I tested on paper for over 1 month. After opening a brokerage account and testing the method with real money I found that executing the strategy to get the price I wanted was too unrealistic and my profit on paper was completely off my real profit on the trades. My suggestion is to start with as little as 10 shares and test the strategy to see how it performs on paper vs. actual performance.
The final mistake many traders make when seeking day trading success is ignoring or going against the current economic conditions. The market and your day trading set up must become one for you to succeed. You must keep an eye on the daily economic conditions and the daily charts of the stocks and the indexes you are trading so that you know which way the wind is blowing.
Two weeks ago for example around the 20th of May of 2013 taking a short position in a stock or the stock index would not be such a great idea. The market was moving upwards with strong internals and overwhelming majority of stocks moving strongly upwards. Today, two weeks later on the 4th of June the stock market is much softer and bouncing off resistance areas. This suggests that bearish set ups are ideal for day traders. Without looking at the underlying market conditions and moving with the market, day traders are swimming against the tide.
Day trading success is possible with hard work, dedication and following basic trading principles. By following these principles you will increase your odds of success that much further. For more information please go to How To Learn Day Trading and Best Day Trading Strategies – Momentum Breakouts
Wishing you the best,
By Roger Scott