The art of day trading is one of the most sought after skills to master albeit very few manage to find success with it. Most researchers have found that the share of profitable traders is a mere 10%. The 90% that are left will find their account in ruins sooner or later. If you think about how easy it is to venture into the day trading world, it is actually rather logical that so many people fail at it. Most people fail because they are not willing to educate themselves, put the theory into practice and keep analyzing their results in order to become successful. The process towards profitability can be a true grind, which is also why most give in to temptations and are not willing to put in the work that it requires. Although as Beverly Sills has put it “There are no shortcuts to any place worth going”.
In addition to the above, the road towards becoming a profitable trader can be costly, it is wise to learn from other people’s mistakes and to not repeat them on the expense of your own account balance. Below is a list of 10 powerful day trading tips that will save you thousands provided that you abide them. These tips are an excerpt from the original article 101 day trading tips, posted on foxytrades.com website.
- Only trade with the money you can afford to lose. Trading is a risky endeavor just like any other business venture, expect the chance of losing your initial investment. This doesn’t mean that you will, but if you are OK with this happening, you will trade more relaxed and are able to make better decisions. Also in the worst case scenario, it won’t affect your personal life.
- Invest into education first. One of the biggest returns on your investment is on the time that you will dedicate into learning the art of trading. The more you study, the better you will become. Consistent profitability is usually reached after thousands of hours of practicing, analyzing your results and making appropriate adjustments.
- Find a mentor whose trading style makes sense to you. Taking the medieval approach of find a master and learning a skill under their mentorship is a highly effective strategy in the day trading niche. If you are trying to find out everything by yourself, you are able to become successful, but it will take you a lot more time to reach the end goal and cost you more money for sure. When trying to find a mentor, pick someone whose trading style generally makes sense to you.
- Keep it simple. The day trading world can be overwhelming at first with all the different strategies, trading styles, indicators and talking heads on TV. If you are new to this and trying to find your way in this jungle, you may start to overcomplicate things. Professional traders keep it simple – they have a strategy that works for them and they do not involve themselves with all the noise that’s out there.
- Be aware of your emotions. One thing that is not talked about too much among beginner traders, but tends to be the main topic among pro traders is trading psychology. Our mental game is affecting the trading decisions we make. Mastering your emotions can either make or break you. The easiest way to avoid losing money due to emotions is to be mindful of them. Recognize the emotions you feel and be aware that they will affect your trading results.
- Treat losses as tuition money. Losses are normal and to be expected in trading. Even professionals lose 30-50% of the time. Instead of beating yourself up, try to take note and learn from them. Treat them as little stepping stones towards becoming profitable and try not to make the same mistakes over and over again. A good practice is to go over your main mistakes every day before you put on your trades.
- Know your stop loss and profit target before entering a trade. When already in a trade, a lot can happen and emotions will cloud your judgement. Driven by emotions, you will become irrational and start making bad decisions. In order to combat this, it is wise to know where to exit with a loss and where to take your profit before putting your trades on. A good tip is to write these pre-set levels down on paper so that it would be harder to disobey them.
- Do not risk more than 2% per each trade. This is the essence of risk management. It is hard to blow up your account when sticking to the 2% rule. Set your stop losses accordingly and you should be able to remain in the game for much longer than the average aspiring trader. If you start out with a really small account, you may have to take on more risk, meaning that your chances of blowing up are much greater.
- Only trade the best setups. It is OK to try to take on all kinds of trades when you are practicing with a demo account to get a feel for the market. But once you deposit money into a real account, only put your hard earned money on the line when the trading setup indicates high odds of success. Trying to gamble on 50-50 situations is not what you want to do if you are looking to grow account size.
- Do post trade analysis. The fastest way towards becoming a successful trader is taking time to analyze your trades. Write down your results, weed out the plays where you tend to
lose money and focus on the setups where you are making money. After repeating this process you will constantly improve and have the highest odds of success. However if you
decide not to bother with it, you will never find the holes that are sinking your account balance.
This list includes advice on how to avoid the 10 biggest mistakes in trading. Most new traders learn these tips the hard way, after blowing up or losing a substantial amount of their investment. Knowing them will not automatically help you avoid the mistakes all together, although it will likely save you thousands in “trading tuition”.