Day trading is complicated. These 20 tips will help ensure that you start day trading on the right foot.
Make a trading plan
A trader must have a plan for making a profit before they risk a dollar. A trading strategy will outline the steps needed to achieve those potential profits. A trading plan is a written document that outlines what we will trade, when we will trade it, how we will do it, why we are doing it, how to exit it, how much we will lose, and how we’ll determine our position size. These are the essentials. As needed, additional rules may be added.
Demonstrate your methods before you trade real money
Once you have a trading plan, it is time to test it in a demo account. Demo accounts, also known as “paper” or “paper”, allow you to make hypothetical trades without risking real money. This is an important step for day traders, as most suffer financial losses within their first month of trading.
The plan won’t work in real life if it doesn’t work on a demo account. The trading plan can be revised. Next, go back to the demo account and test the changes. Continue this process until you have made a profit for several months consecutively. It is most likely that your trading plan is successful at this point. These tips will help you get to that point with your trading plan.
To Avoid Making Mistakes, Create a Day Trading Strategy
A routine is essential for trading days. You should have a routine for each trading day. This includes getting up each morning at the same time, trading at the same time every day, and keeping track of any economic data releases that could affect the market.
Stop trading for a day and have a routine to review all trades. To ensure that every trade is in line with your trading plan, you should have a checklist.
Do not hold positions during high-impact news announcements
The impact of high-impact news releases is unpredictable. They can push the price in a direction that is not predictable. The announcement of earnings by companies and the release of economic data are high-impact news events. Do not trade during these events. Wait until the news is out before you trade. To capitalize on volatility, you can use day trading strategies.
Review Trades Weekly & Monthly
To be successful long-term, a review is essential. A trader cannot see the whole picture and know what is working well and what isn’t.
Take a screenshot each day of your chart and mark all trades. Review the previous week’s charts and make note of any deviations from your trading plan at the end. Notify the areas that need to be improved. Make a plan to implement these changes.
Review your weekly plans at the end of every month and take note of any progress.
Make a mental checklist that each trade must satisfy
It is easy to lose sight of the trading plan when you are looking at a price graph. Before you trade, make sure to have a checklist. This checklist ensures that every trade follows the specifications in the trading plan. The checklist is easy to review and can help traders avoid many poor trades.
Make a plan for when your weaknesses arise
Every trader has both strengths and weaknesses. Traders will eventually notice their weaknesses. For example, they might not take a loss when it is due or let it grow. These weaknesses can lead to big losses quickly. Make a plan for what to do if you make one of these errors.
It may involve closing the trade immediately and then taking a mandatory 10-minute break. It may also include asking for help from a friend or hiring someone to help you until the problem is resolved.
Utilize a Stop-Loss Order
If the asset’s price does not move in the desired direction, a stop-loss order will allow the trader to exit the trade. This is where traders must admit that they were wrong. Losing trades are inevitable because it is impossible to know what the market will do at any given moment. The stop loss protects traders from larger losses during these times. 2
You take less than 1% risk per trade
Stop-loss should not be placed if it reduces the loss caused by losing trades to less than 1%.
The account risk is defined as the 1% risk in dollars. The trade risk is defined as the difference between the trade entry and stop-loss prices. The trade risk multiplied with the position size should equal or exceed the acceptable account risk (1%).
Stop-Losses are based on today’s market conditions
You should place stop-loss orders that are based on a proven strategy but also based on today’s volatility. Stop-loss orders should reflect volatility today. To give trades more flexibility, increase the stop-loss and decrease the size of the position. You can move the stop-loss closer to the entry point on very quiet days.
Profit Objectives are Based on Current Market Conditions
Profit targets are similar to stop-losses, which are adjusted to adjust for volatility changes. When we are in a profitable situation, targets are orders that help us get out of a trade. Targets can be moved farther away from the entry point during volatile times.
A more ambitious profit goal can offset the higher stop-loss that is used in such periods. Stop-losses can be decreased when there is less volatility, but they are generally lower during quiet periods.
The potential reward should outweigh the risk in every trade
The percentage of trades that we win and the average amount of losses are what determine our overall profit. Day traders should aim to win more trades than they lose.
This means that trades should only be taken if the target is likely to be hit. Trades can also be placed further away from the entry point than the limit. If the stop-loss is $0.10 from the entry point, the target would be $0.20. This case, the reward potential is twice as high as the risk.
Use a Daily Stop Loss
A day trader should limit the amount they can lose per day, just as they should manage risk with a stop loss. Bad trading days can happen. These bad trading days can ruin your entire account. Limit single day losses to what you can make back on a profitable day.
If traders are new and don’t know how much money they can make in a profitable day, they should limit single-day losses at 3% or less of their account balance.
Limit Orders for Position Entry
Limit orders will only be executed at the specified price or higher. 2 We use limit orders when entering trades to limit the price at which we will enter. Market orders can cause your entry price to be higher than you expected. This could throw off your entire plan.
Trade at the Same Time Every Day
Different market tendencies can be observed at different times of day. Day trading can be made more efficient by implementing strategies that work at certain times of the day and only trading during those times.
Concentrate on one market at a time
New traders often feel the need to trade any moving object. These traders often end up learning nothing. You can become a master of one market or one instrument if you focus on one particular market. Being a master at one thing will result in more consistent results than being poor at trading many other things.
Indicators are less important than price action
It is important to know how an asset’s prices are moving than what the indicator is telling you. Most technical indicator only look at historical prices and can’t tell what is happening now. You will find out what is happening right now by looking at the actual price.
Technical indicators are not prohibited, but they should be used only to complement the price action information.
Do not let a single mistake turn into more
Trade mistakes are common. These mistakes can be annoying and costly, but they will not stop you from being a successful trader.
Do not let a mistake get in the way of your success. Accept the fact that mistakes will happen and then focus your attention on implementing your strategy. Trades should be done every day. We could end up losing a lot of money if we make more mistakes than we should.
Avoid distractions like newscasts and analyst’s opinions
Day traders are responsible for implementing a strategy that works as long as the conditions permit. This endeavor will not be helped by outside input. In fact, it could cause us to abandon a profitable strategy that we already use. You can’t let market opinions influence trading if you have a successful strategy.
Trust Yourself, your research, and your practice
Many new traders get caught up in a never-ending search for more. They read books, watch videos, and jump from guru to guru. All this knowledge will not necessarily lead to better results. To make a profit, you only need one strategy. Trust yourself once you have done that. It is your money.
The bottom line
These tips will help guide you to find the right path to profitable trading. For more tips look at Gary Fullett article. These tips should not be used as a substitute for learning a strategy or testing it in real-world trading situations. Your day trading success or failure will ultimately come down to how much work that you put into it.