If you have just entered into the exciting world of day trading, or are considering such a move, it’s critical that you are well educated before you put your money on the line. There are some very basic concepts in regards to trading that, once learned, appear to be common sense; however, most newbies have no idea at the outset of their trading career and suffer tremendous losses as a result. With something as potentially profitable or risky as day trading, you absolute cannot go in head first without looking. First, you must understand that there is a method to the madness. There is a reason why some traders find repeated successes while others have a consistently difficult time. If you don’t want to end up broke after your initial stint in trading, it’s wise to learn from the mistakes of those who have failed and the strategies of those that have succeeded and continue to succeed. If you choose to rush in, you might as well save yourself the time and energy and donate all the money you planned on investing to some charity or other. Don’t do it! Take your time, watch the market, and learn as much as you can before making that first trade.
Strategy 1: Preparation and Education – Although, this has been pretty well covered in the above paragraph, it is important enough that it should be reiterated and remembered again and again. However, once you’ve made it past your initial self-education on the subject of day trading, you will need to prepare before each trade you make. This is a simple, but incredibly important, process. Avoid unplanned trades at all costs. Study up on the market and be totally certain and ready for your trades before the market opens. This is critical if you are to avoid the typical trading pitfalls and find success in your day trading career.
Strategy 2: Use the Trading Gap to your Advantage – If you are not already aware of the so-called “trading gap,” it is a term that refers to the change in price levels between the open and close of two consecutive days. There are a variety of ways to take advantage of the trading gap and they each should be studied carefully.
Strategy 3: Focus on the Market, not the P&L Account – Don’t get caught in the trap of focusing on the profits and losses of active trades. Instead, keep your attention glued to the chart price. When properly prepared, your stop should be a predetermined amount of risk. Consider the active trade’s profits and losses to be an unnecessary distraction. It can also cause you to get an incorrect impression about how well your trade is doing. Focus on the chart price and let your stop do its thing.
Strategy 4: Keep it Simple – Day trading can be complicated enough without an overly complex strategy or trading plan. The simpler your core system and plans are, the better it will be for you in the long run. You don’t want to set yourself up for confusion. Confusion will lead to bad trades and losses.
Strategy 5: Forget the Big Move – An all-too-common pitfall of day trading, is the quest for the big move that will make a fortune. It’s true that such moves can be done, have been done, and will be done, but it is usually the result of luck in one way or another. This type of mentality will, in the end, lead to bad trading moves. The goal should be to make consistent small moves that will add up over time. The small move strategy will also minimize risk and losses when a trade goes south.
Strategy 6: Tenacity – Like any field where the end goal is highly desirable for a large number of people, the majority of traders who fail do so because they give up. The fact remains that the only way to succeed is to stick with it until you are successful. It takes time to understand the market and to get a “feel” for trading. You will have a variety of small successes and failures. However, you can’t actually fail unless you give up. It has been said that if you haven’t succeeded, it’s because you haven’t allowed yourself to fail enough times. This is true for everything and day trading is no exception. Persevere and own it.