So. You’re interested in becoming a Day Trader. Well, 80% of new traders go out of business within the first 6 months of their first trade. If you’ll like to be the other 20%, here are some steps you should take to become a successful day trader.
Choose Your Market.
There are many options. They range from the conventional instruments that include Stocks, Options, Futures, FOREX and Bonds to the less conventional instruments like Spread Betting and Binary Options. All of these instruments can potentially make you lots of money (or lose money for you if you’re not careful), and some of these instruments are more suited for you than others.
For example, FOREX and Futures trade actively throughout the day. The market only closes on the weekends and on some Holidays. If you find yourself going sleepless worrying about your overnight positions, its better to stick to Stocks or Options.
Whats Your Strategy.
In general, traders either practice Technical or Fundamental Analysis. Technical Analysis involves the analysis of price action, usually using historical prices to predict future price action. Fundamental Analysis involves the analysis of a company’s fundamentals to predict future prices. So which strategy is better? There are very successful traders from both schools of thought so there isn’t a “better” strategy to stick to. In general, Day Traders opening and closing trades within a day are more Technical than Fundamental, while a fund manager trading holding positions for months or even years are of a Fundamental Analyst.
Trading Is A Full Time Job.
If you want to be successful Day Trading, you’ll need to realize that trading is a full time job, not a part time hobby. One of the reasons why many new traders fail as Day Traders is because they start Day Trading as if it was a hobby. There are patterns and cycles that happen over and over again on a daily basis, and the only way for new Day Traders to see these patterns is to be at the trading workstation at the same time, every day, for many months. If you’re holding a day job working form 9-5, its not the end. FOREX and Futures trades 24 hours a day and it is possible for a new trader to trade these instruments after work. This also means you’re going to lose your after work social life. No one said it was going to be easy. Its a tough industry to be in and if you like to be successful, there are sacrifices that need to be made.
Keep A Diary And Become Better.
The only way to keep track of your trading performance and your emotions when you make a good or bad trade, is by keeping a trading diary. In addition to just putting charts and trades in the diary, you should start writing how you feel throughout the trade. Writing is one good way to realize what these emotions might mean. For example, if you generally make losing trades when you are feeling angry, you’ll quickly learn not to take trades when you’re felling that way.
Now that you’ve got a strategy and you’re taking trades while keeping a trading diary, you’re ready to refine your strategy. Is there a particular chart pattern that works best? Or is there a time where trades you take seem to get stopped out very often? Make less of the bad trades and more of the good trades. You’ll be come better.
Stay In The Game.
The key to become successful is to stay in the game. Most traders become consistently profitable after trading for 6 months to 1 year. So if you bust your account before that, you’ll probably swear off trading and you’ll never become profitable. Size your positions well so that you don’t lose too much money in one trade. Remember, trading isn’t about making 100% in one day. Its about making 1% everyday.
Scale It Up.
You’ve stayed in the game and you’re finally profitable for months! Its time to scale it up. Try not to scale up too quickly. If you’ve been used to seeing losses of -$100 at a time and you decide to scale up five times, you might get emotionally screwed seeing losses of -$500. Its much wiser to scale up slowly 10% at a time to help you adapt to a new norm.
Quit Your Day Job.
If you haven’t quit your day job and you’re already consistently profitable and beginning to scale up your positions, its time to quit your day job! Congratulations. You’re now a Successful Day Trader!