Unconventional Advice to Improve Day Trading Skills
Day trading in a volatile market can test the patience of even the most hardened trader. Day traders have a big advantage over buy and hold investors in that they don’t care which way the market is moving as long as the trades they’re making are profitable. It’s a hard mindset to get into if you’ve been a buy and hold trader most of your life.
Volatile days are some of the best for day trading because it can bring profit spikes unlike any other. You should always develop a strategy, know which stocks to watch for, and execute the strategy flawlessly to make the most of your day trading, but some unconventional wisdom might help, too.
Trade for real and not for practice.
A lot of day trading sites will tell you to start with practice accounts and fake money to learn the ropes. That’s good enough if you’re an absolute dum-dum with only the technical aspects, but the only way to truly understand the emotions behind day trading is to live and breathe trade. Day traders are legally required to have $25K USD in their accounts to day trade, but there are some ways to skirt that.
Starting small with trades.
If you have less than $25K in your broker’s account, you are limited to three-day trades in any five-business-day period. A fourth roundtrip day trade will designate the account as a pattern day trader, and you must deposit $25K into the account to continue using it. Free trading tools like Robinhood feature protections to prevent your account from being designated as a day trader. You can still use your three allowed day trades more selectively to make profitable day trades without having to worry about maintaining a margin account.
Don’t be overconfident.
One of the number one mistakes that trading newbies make is assuming all of their trades will be profitable. This overconfidence can lead them to make the same mistakes over and over. Don’t go chasing what you think should be a profitable trade, buy what is. That’s a hard rule to follow, but you should always be looking to add to your wins rather than your losses. Have some form of risk management built into your strategy to avoid throwing good money after bad.
Abandon your emotions.
Part of being a good day trader is not getting caught up in the excitement of a successful trade. Most successful day traders immediately stop trading the rest of the day after they make a huge profit to stop those emotions from causing bias in their trading patterns. If you are overconfident or feel too giddy when making your trades, you should probably stop trading, too.
Trading diary is your best friend.
Traders can fall to their own bias of thinking they’re successful when they aren’t. A trading diary will help you keep a record of all the trades you’ve made, both wins and losses. You can look back and see whether you made a profit that day or if you were in the hole. Starting traders often focus on the win column rather than the win percentage. If your win percentage profits are not higher than your loss percentage profits, then you are not truly succeeding at day trading.
We hope you enjoyed this post in collaboration with Justin Weinger. Justin is a corporate finance professional by day and an avid finance blogger by night.