Essentials of Successful Day Trading

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 ¼% 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, ¼% 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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