Let’s consider the statistics that exist for day trading success. According to one article, the success rate (based on making money via a consistent income) for men who try short-term day trading is almost 4%. This means about three or four men out of every 100 will be successful at day trading.
This tells you two things.
- One – There is obviously an easy way to fail at day trading.
- Two – There is definitely a secret to getting it right – you just have to find out what it is.
Success in day trading is difficult, that much is obvious, but it’s not something that can’t be done. There are obviously successful day traders alive out there. What is it that they do that the others didn’t? How can you find true success in day trading when the odds are so stacked against you?
First, understand there’s no one surefire road to success as a stock trader. If there was, those other 96 men would be sprinting down it at top speed, in a marathon with each other to finally meet up with their other four compatriots that did it all right the first time. This doesn’t mean, however, that there aren’t some obvious ingredients to mastering stock trading.
- Your Approach
So much about your success as a stock trader will be in what you do before you ever make your first trade. This has to do with all of your preparation for the day you finally settle down and make it all official as a day trader.
One basic question is what sort of stocks you’ll want to work with. Start small to begin with. Many successful traders only work in one industry and they do just fine. Advanced traders play all over the field, but that’s just not you yet. If you know about oil, invest in oil. If you know about tech, invest in tech.
Consider the time frame in which you want to invest. There are stock traders that utilize five-minute charts and stare at their computer all day, watching the stock numbers ebb and flow. Other stock traders are much more laid back and like to go off of weekly charts, looking through the patterns on the weekend and setting up their trades then.
This also brings risk into the mix. Five-minute stock trades remove overnight risk, while weekly trades guarantee risk is involved.
You also know at this point that there are multiple types of stock based on price level. Some stock traders like to buy support level stocks that have difficulty falling. Others like to deal in breakout stocks that are more volatile. This deals with your methodology – what types of stocks work for you? Consider different strategies before you settle on one.
- Your Attitude
Stock trading is a very disciplined craft. It’s not just about book smarts, but also about training yourself psychologically. Day trading can break those who aren’t prepared for the stresses and highs it can bring on, so you have to be prepared.
First, you must learn to be patient. Not only is this helpful in keeping you sane while waiting for a trade to go through, it also keeps you from having an itchy trigger finger. If you aren’t patient, it’s easy to follow through on point of entry that you haven’t fully researched.
Next, consider how disciplined you are. You must have patience, but discipline is the ability to execute this patience. It’s learning to wait for the right price point, knowing there will always be another trade if one falls through and knowing when to take action.
You also have to be objective. Trading with your emotions is a bad idea if there ever was one. This involves a dedication to your knowledge and instincts, not how you feel about the trading of others. If you see someone using a formula that works, feel free to take notes – but don’t get jealous and be influenced by bad opinions.
Finally, consider how realistic you are. Stock trading isn’t how you get rich overnight. There’s also no such thing as investing a dollar and making a million. Sometimes good deals happen, but most of your gains will be balanced based on what you invest.
- Your Discriminations
It’s important to not stick your fingers into too many cookie jars when it comes to stock trading. Diversification is great, but if you’re just starting out, stick to what you know. Even older investors will tell you it pays to stay in your lane, so don’t swerve into foreign territory.
This means considered what instruments and methods work for you, and which don’t. Are you interested in investing in hedge funds, or mutual funds? Both of these investment forms have different motivations, and different market instruments trade differently based on a number of factors.
The best tip is to pick a handful of different instruments, like commodities and currencies, and follow them carefully in a variety of timeframes. You already have a methodology in place, so overlay these practices onto the instruments in question. Which works best for you? Which don’t work at all?
- Your Management
We’re closing in on a very big, very important lesson – no trading system will be fool proof. Ask any investor, and they’ll tell you that they’ve had a loss now and again even with a system they considered to be perfect. It’s unrealistic to expect you’ll gain every single time.
In reality, a profit to loss ratio of 65-75% is outstanding, especially if you’re a new-comer. This ratio is important, but what’s more important is managing your system and executing trades that have higher probabilities of success.
This has a lot to do with risk control. Some trades are high risk, while others are relatively guaranteed. The object of trading is to try and eliminate risk as much as possible, whether it’s taking a hit before the risk becomes even greater or unloading a trade when you know the risk isn’t there but know it may come. Risk control is something that requires large amounts of patience, stock pattern knowledge and discipline to make the right decision.
This is all excellent advice on how to start off your day trading journey in a successful way, but remember – there is no guaranteed success. You have the tips to make it happen, but you still have to create a formula that works for you. You have the tools – now you just have to try to become part of the 4%.