Weekly Newsletter   Challenge account   Weekly Newsletter   

How To Become A Better Day Trader

One of the questions that you often see when you “Google” anything about day trading is “how do I become a day trader?”

However, a better question is “how do I become a better day trader?”

I asked experts and novices, as well as researched the plethora of websites on the subject, to narrow down some of the best advice on becoming a better day trader. The goal is not to dump a lot of useless information on you about how rich you can become by simply sitting in front of your computer and buying and selling stocks all day.

Quite contrary, as that is the very misunderstood part of day trading. True, there are plenty of instances where people have eked out fortunes from day trading. Was it luck? Was it persistence? Was it their gift of fortune telling?!

I think none of the above. Instead, I think a large part of their success stemmed from their daily approaches to their trading and their keen awareness that taking profits through day trading begins long before you turn on your computer and monitors.

It’s not just about sitting at a computer all day and making trades; that’s the habit of those who are just trading, and sadly, sometimes trading ignorantly. Becoming a better day trader means employing not just strategy, but discipline. Here are some of the most pressing things that I found that may help you strike it rich as a day trader, or at least stay afloat!

 · What the better day trader’s plan entails

By far, one of the things that separates the day trader from the better day trader hinges on the daily plan. It’s important to understand the importance of having a daily plan at hand to use as a guide in making your trades.

The first piece of your plan identifies the kinds of stocks you want to trade. The plan then lists the best entry points. You’ll include your target price based on the strategy of your choice. Are you comfortable selling the stock as soon as it starts making you money? Then scalping may be the way to go for you.

Does the news that Apple sold fewer iPhones than analysts expected, make you want to run for the hills and sell or avoid buying its stock? Then you may be a momentum trader who prefers trading on news. Whatever your strategy, being a better trader means having it in your daily plan.

 · Don’t just develop a plan each day; Stick to it

The only thing that trumps having a daily plan is sticking to it. That may sound so simple, but when the day gets going, and your trades aren’t going your way and you’re eyeing another stock that’s riding higher…you may want to veer off course. Don’t. The better day trader knows better.

There comes a time (or several times) in every day trader’s life when they consider throwing caution to the wind due to their “guts” telling them to abandon their plan and chase a stock. This seems to be especially the case if that stock is moving higher at a quick pace. Becoming a better trader means recognizing that while it seems everyone is jumping on this stock’s bandwagon, it’s likely not the ride for you.

As noted at Bankrate.com, “experienced traders are going out the back door while new traders are coming in. If you miss a stock on the way up or down, let it go. There will be other trading opportunities.”

 · Know when to cut your losses

Another issue that conflicts day traders, especially novices, relates to trying to figure out when to cut their losses.

“Statistics tell us that most new day traders lose more than $21,000 dollars in their first three months of trading. If they use leverage, the average loss rises to more than $45,000,” according to CRB Trader.

Nothing supports the reasoning for not overtrading and cutting a loss more than an understanding of the mathematics of what it takes to recover from a previous losing trade.

When it comes to knowing when to cut your losses goes back to your daily plan.

 · Know the regulatory rules

Part of being a better day trader is being fully up to speed on the regulations surrounding the industry. While it may be easy to fall into the train of thought that you’re operating within the confines of federal regulatory bodies when you make your trades, there are some key things that can spell disaster.

One area that seems to slip traders up a lot relates to margins. Clearly you know that’s borrowed money and they can spell disaster for you if that trade goes the wrong way. The better trader understands this, as well as the rules surrounding how much the can “borrow.”

A rule in particular relates to pattern day traders. The Financial Industry Regulatory Authority, or FINRA, issued investor guidance to provide some basic information about day trading margin requirements and to respond to frequently asked questions. The better trader familiarizes themselves with such regulations.

 · Network

Meeting others who day trade to share their thoughts and ideas could also be helpful. Not only may others be able to give you some strategies that you may not have considered, but getting away from those monitors and breaking up the monotony of your day will be stress relieving.

 · In conclusion

You can have the best of all the technology in the world; you could have talked to dozens of top notch traders; you could have read up on the subject until you are blue in the face. All of this will be fruitless, if you sit in front of your computer, and let your emotions lead you away from your plan.

Leave a Reply

Your email address will not be published. Required fields are marked *