How To Become A Good Day Trader

Tips for Day Trading

How To Become A Good Day Trader

Trading is like learning to ride a bike.

Huge problem though – new traders are taught to pull a wheelie before they can even ride.

There isn’t a magic bullet or simple success blue print you can follow, but you will have to invest your time and money carefully. There are plenty of free resources available to educate yourself before you can start trading.

Given the fast pace of trading, which can allow a trader to amass huge profits within a short amount of time like no other profession ,the associated risks with trading are very high.  Trading is also not so simple as it may seem to a lot of beginners. It is a known fact that over 95% of new traders lose money at trading. However, we don’t know how much money the successful 5% of the traders make. The good news is that making money is possible and despite the small percentage of people making a success at trading – you can actually do your part to be amongst the 5% of the successful traders.

Overcoming Your Fears

We have a natural fear when it comes to dealing with money or time sensitive problems. Losing time and losing money coupled together creates an even more intense and unfamiliar environment for new traders. The fear of money aside – just like any other trade, day trading comes with its own risks and rewards. Day trading, when done correctly, can offer fantastic opportunities and rewards like no other trade.

It’s a psychological effect, which is often referred to as; ‘Fear and The Fear Of Fear’ which basically means we are likely to react more sensitively to matters that trigger our sensitivity. Money being a common denominator to trigger our emotions – we are naturally more sensitive to matters that involve money, and then there’s the fear of losing it.

We become fearless by walking in to our Fears

Robin Sharma

It is also a know fact that people approach money matters differently, as some us are more careful than others, and vice versa. The best approach is to make progress slowly by taking on smaller risks and focusing on developing consistency to start with. As you learn to trade and overcome your initial fears, only then you should gradually start being more adventurous. Trading is more about a mindset then anything else, so invest your time wisely and develop the right mental approach to trading.

You need to think a little deeper, and ask yourself the right questions. Are you afraid that you know little about trading? Are you afraid that you could make the wrong judgements in reading and analysing the market? Or is it just the fear of the new, unknown and unfamiliar environment of trading. The best thing you could do to address those fears is to address the issues one by one.

Too many of us are not living our dreams, because we are living our fears

Les Brown

You could start with your biggest fear and work your way down, but remember that there isn’t such a thing as ‘safe trading’, so no matter how much you prepare and educate yourself, you will still make mistakes and lose some money trading on a regular basis. In other words – you’ll learn to manage your fears and work around them.

Another important rule to remember is the fact that fear and greed are the two most powerful human emotions that drive all trading activity. If you learn to observe your own weaknesses – chances are that you will also learn to predict the behaviour of others, and eventually learn to play the market.

Learning To Trade

If you’re new to trading, then do not make the assumption that trading looks easy and anyone can do it. The barriers to entry in day trading are so low these days, as all you need is an internet connection and a computer or even a mobile phone to get going. The capital requirements have come down a lot which is a good and bad thing at the same time. It lures-in novice traders and gives them an illusion that anyone can kick starting their successful trading career right away. Jumping straight in and too soon can be an expensive mistake. If you do so, you’ll definitely learn some hard lessons, and be ready to pay a good price for it. It’s extremely important to learn the basics of trading first.

On a personal level, I feel that learning to trade has been a very enlightening experience. It has been a journey of self discovery for me. The more I learn about myself the better I become at trading. I have learned a great deal about my own weaknesses and shortcomings, and trading also gave me an opportunity to work on them. I was oblivious to my own deep inner fears and strengths before I started trading. It was only after I started to learn from the best people in the trade that I began to discover the importance of my own inner workings, rather than the outside world.

Trading theory and lessons

In an earlier post we laid out the basic rules of trading with the do’s and don’ts that can help you get started. It goes without saying that you can not excel at anything if you don’t know the rules.  Below are some of the resources that I have found very helpful in learning the basics. They have a huge archive of lessons from beginner to advance level. They also have online tests you can take to find out how much you know about trading. I think its a great excercise to learn, and see how much of the information you retain by taking the tests.  Has comprehensive coverage of all the basic concepts, theories and strategies. They also publish technical analysis of various markets, commodities, forex and stocks. Over the years, I have used investopedia as a reference to all things trading, to read definitions of trading terminology and practices and techniques. I still regularly read their real-time analysis to determine current market conditions. This website features a great collection of articles written in simple plain language without much use of technical lingo. The information presented is straight forward and simple to understand. The articles are also laid nicely which makes it easy to browse and go through the various stages of learning with ease.

Trading Terms and Glossary

Investopedia  This collection is however very detailed and can be overwhelming to learn as it covers definitions on a widge range of trading and investing disciplines. However, I personally use it to lookup a term that I want to know about.

WarriorTrading Their glossary of terms is more directly focused on day trading.  Their website is very nicely laid as you would find everything on a single page, plus a quick search feature is very handy to lookup terms.

Good video resources for day trading

Another great way of learning these days is by watching videos on youtube as there are countless trading experts giving away free lessons. The problem though – who can you really trust. A great majority of them are bonafide stock trading affiliates who are more interested in signing you up for whatever program they are promoting than coaching or sharing actual trading education.  Picking a good trading coach can be an overwhelming task itself, however if you look closer and see the subscriber numbers and activity on the channels you will get an idea to some extent as to who to follow.

Some of the best youtube channels for learning

The Shadow Trader – You get weekly updates on market technical analysis from Peter Reznicek and the people behind ThinkOrSwim platform. I do not use ThinkOrSwim but do enjoy watching their videos as they are very objective and to the point.

Stephan Bigalow – If you want to learn Candlesticks, then Stephen is your guy.  He can prove it to you that they actually work and there is some truth behind them for being around for more than 300 years. You get daily videos of market analysis with a special focus on candlestick patterns.

Brian Shannon – This guy is relentless for putting out some great technical analysis videos on a daily basis.  Brian Shannon is a qualified market technician and formerly worked for Lehman Brothers to gain some valuable trading expertise.

Chaos Trader63 – Some of the best videos on very basics of trading; such as fractals and candlestick analysis.

Warrior Trading – Has some great videos on a wide range of basic topics to weekly market analysis. Their analysis is however more focussed on using their own market scanning tools which I am not affiliated to selling here, but do watch their videos on the trading concepts and general learning as they have some quality content on their channel


Some Of The Best Trading Books and Biographies

The Daily Trading Coach: 101 Lessons for Becoming Your Own Trading Psychologist by Brett N. Steenbarger
This book is written more like a one-to-one advice as if a trader was talking to you and the sole purpose of this book is to make you cultivate the mentality required for the unforgiving and fast moving world of trading. Besides uncovering the psychology of trading the author Brett also shares some great techniques and strategies that you can put in to practice in a given market condition.

Pit Bull: Lessons from Wall Street’s Champion Trader by Martin Schwartz
This is rather a more personal account of a traders life and his mindset than any trading strategies you can learn. However, there are some hidden gems in the book that Marin just sprinkles without much explanation and dedicating a chapter for those hard earned lessons. The book is very gripping and interesting right from the start to the very end and quite entertaining at the same time.

Expand Your Learning Beyond Trading

Learning Money Management

Learning to manage money is beyond a skill. What this means is – Money management is a more of mindset. Often new traders learning to trade come from different walks of life where money management plays a less important role, and even the formally educated are not taught to make money work for them. We posted earlier how to make money work for you – rather than working for money.

Knowing What To Trade And Where to Trade

Starting out you may be clueless as to what to trade and where to trade. This is extremely important that you keep you keep your focus very narrow when starting out. Every market and every stock, commodity or currency pair has its own unique personality and the days you trade and the times you trade has a huge impact on your success rate.  As your experience grows you’ll begin to understand the correlation between stock, commodities and forex currency pairs – how change in one effects the other. There are no guarantees but you will see repetition of patterns and trends all the time. Take your time to absorb and learn from the past archives.  You should always take notes of your own trading activity and also refer to previous trading activity if you want to learn and predict future trends.

Keeping Up With News & Events

Often traders who trade technically do not rely much on news and events and rather keep a shard focus on the current price and trend. Being a technical trader, I am an advocate for not relying too much on news events – however it’s always beneficial to be well informed and more importantly knowing what the overall market could be thinking at a given time. You may not rely on news for your trades but big events play a huge role in shaping the opinion of the masses and do effect trades all the time.

Learning The Psychology Of Trading

This blog is mainly focussed on trading psychology and we have discussed quite a lot of topics that you may find useful in learning the psychological aspects of trading. It’s equally important that you focus on yourself and learn to groom your own thinking and understanding but also the psychology of others. Learning to control your own emotions will benefit you in your own trades and profitability, whereas your overall grasp on human psychology will help you determine the market behaviour.

Below are the topics we covered on trading psychology so far

1. The Real Need For Trading:

2. Keeping An Open Mind For Trading:

3. Learning To Think Like A Trader:

4. Your Concept Of Money Changes Your Psychology:

5. Psychological Factors That Drive Trading:

6. The Nature Of The Trading Game And Psychological Implications:

7. Why Do We Need Predator Mentality To Succeed?:


Finding Your Own Style

Getting proper coaching and advice from a successful traders is highly beneficial, however one must find their own style. Just how all humans are not equal in their capabilities – one’s trading style might not suit another. This is something I have found when I first started to trade and failed miserably at some trading styles that were yielding great profit for my fellow traders. For example swing trading has never been my strength and although there are some great profits to be made from swing trading, I simply do not have the mental framework to cope with how actually swing trading works. I have tried my hand on scalping the market and have never made any decent profits. I am good at spotting short term trends, breakouts and reversals after a trend and for the most part those are the trades I wait for and trade successfully.

Knowing That You Can’t Win Everyday

There is a pressure to win, after all we all trade for making money. Having said that we must always remember – even with the best of the analysis, and all market clues pointing in a certain direction the chances of success are still 50/50.

Opportunity is missed by most people because it is dressed in overalls and looks like work.

Thomas Edison

I have lost countless trades that I was more than 100% sure that would go in a certain direction and ended otherwise. You should always take positions that you can comfortably lose and avoid revenge trading at all costs.

Being Patient, Yet Persistent

A setback should not make you give up, or a big win should not make you too cocky. You must set yourself some limits and boundaries and trade within those limits. It’s tricky at times to stick to a plan when sometimes the market keeps giving and you start to become overconfident and raise your stakes and risk exposure. If you are winning trades then keep your discipline to maintain a safe margin and let your profitable trades run as long as you can. When you see a trade going against you then do remember to quit the position before it’s too long.

Rewarding Yourself

Traders are infamous for wearing multiple hats and logging numerous hours in front of their computer screens. When done over a period of time, it sets off strain reactions, such as stress, fatigue and negative mood,  which is why, it’s an absolute must to take time off work and enjoy the benefits of whatever money we can afford to spend on ourselves. There isn’t any justification to over work yourself and not have the time to benefit from your hard work. It’s easy to fall into the trap of overdoing it, therefore, always take time off work to do other activities that you enjoy. Not only it will give you a chance to recharge your energy but it will also make you more productive and more effective in the long run.

Money is only a tool. It will take you wherever you wish, but it will not replace you as the driver.

-Ayn Rand

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