Day trading is not a business that involves a lot of surety. You will constantly be taking a gamble especially since you’ll be pitted against the best of the best from the word go. There is no way to guarantee success in day trading, but that being said, there are tips that can put you in a better position to achieve great results.
Herein are the five steps listed below will help you avoid common pitfalls in trading and set you on the path to reaping great profits.
The only way to develop crucial day trading skills is through practice. Any expert trader will tell you that paper trades and simulations are invaluable tools especially when it comes to mastering new trading techniques. Practising gives aspiring traders insight into what a good trade looks like as well as the various market conditions that support it. Practicing also lets you learn what a reasonable profit margin looks like, and the entry triggers that are most conducive for profitable day trading.
Create a Trading Plan
Going in without a plan is a recipe for failure when it comes to day trading. A trading plan lets you make decisions like what trade setups to use, the markets to trade, and time frames in advance, thereby reducing the amount of decision making required when the trading market opens.
Professional day traders create plans that also cover contingencies such as risk parameters, increasing position size, and the procedure to follow in the event of an unprecedented drawdown. You can tailor your plan to include when to reap your profits from the account too. This leaves you with a lot fewer things to think about when you’re about to enter a trade.
Learn How to Read the Chart
Relying solely on systems and indicators to know when to buy or when to sell is not a good trading strategy. These don’t always deliver results despite the high claims they are backed by. Instead, teach yourself how to read the volume and price bars on the trading chart, and learn how one affects the other. There are patterns to be discovered throughout all the phases of the market cycle. No system or indicator can accurately learn and predict these patterns for you, so the only way to gain an edge in day trading is to learn these patterns by yourself.
Incorporating Sound Money Management Practices
Even the most proficient traders cannot conjure a trade setup that will always win 100 % of the time. Losing trades are always on the fringes, so the best way to keep your losses at a minimum is by sound money management.
Money management entails more than just how much you should risk in every trade. It should guide you towards trading success by letting you know when to increase or decrease position size depending on how high the odds are of the market closing on a good or bad note. Even with a string of losses, sound money management will ensure that you are making profits at the end of the day.
Understanding the Mental Side of Day Trading
Day trading requires mental fortitude. The psychological side of trading is often ignored by traders until it works against them. Seasoned traders use psychology primarily to reduce unforced errors and to hone in the trading skills and abilities they have already acquired. Too often, novice traders fail to enter sound trades because they lack the mental prowess required to pull the trigger. In essence, learning the psychological side of day trading will contribute to your chances of success as well.