One of the side effects from the recent volatility in the price of oil has been the increase in day trading. The availability and ease with which trading accounts can be opened is furthermore contributing to its increasing popularity. Day trading is simple to learn, but it is it is incredibly difficult to master.
I cannot define myself a good day trader. I am more inclined towards fundamental, value investing. My tendencies towards addictive behaviour certainly do not help. However, since I am repeatedly asked the same questions I have compiled a list of tips from the net, which any day trader should keep in mind.
- If you want to stay in this business, leave "hope" at the door and stick to your stops.
- When you get into a day trade, start looking for signs right away that you are wrong. If you see them, then get out before your stop is hit.
- Day trading should be boring, like factory work. If there is one guarantee in trading, it is that "thrill seekers" get their accounts ground into parking meter money.
- Amateur day traders turn into professional online traders when they start controlling their risk on each trade.
- You are trading other traders, not the actual stock. You have to be aware of the psychology and emotions behind online trading.
- Watch yourself if you get too excited - excitement increases risk because it clouds judgment.
- If you come into day trading with the idea of making - big money, you are doomed. This mindset is responsible for most accounts being blown out.
- Don't focus on the money. Focus on executing day trades well. If you are getting in and out of day trades rationally, the money will take care of itself.
- If you focus on the money, you will start to impose your will upon the market in order to meet your financial needs. There is only one outcome to this scenario: you will hand over all of your money to day traders who are focused on protecting their risk and letting their winners run.
- Refuse to damage your capital. This means sticking to your stops and sometimes staying out of the market.
- Keep winners as long as they are moving your way.
- Don't overweight your trades. The more you overweight a day trade, the more hope comes into play when it goes against you. Hope is to online trading as acid is to skin. The longer you leave it in place, the more painful the outcome will be.
- There is no logical reason to hesitate in taking a stop. Professional traders take losses. Being wrong and not taking a loss does damage to your wallet, mind, and soul.
- Averaging down on a position is like a sinking ship deliberately taking on more water.
- Professional day traders only place a small portion of their assets into 1 position.
- Professional day traders focus on limiting risk and protecting capital. Amateur traders focus on how much money they can make on each trade. Professional day traders always take money away from amateurs traders.
Finally, remember that the stock market reinforces bad habits. If early on you held onto a loser that went against you by 20 per cent, and you were able to recover those losses, you are doomed. The market has reinforced a bad habit. The next time you let a stock go against you by 20 per cent, you will hang on because you have been taught that you can get out for break-even if you just be patient and hang on long enough.
Disclaimer: This article was issued by Antoine Briffa, Investment Manager at Calamatta Cuschieri. For more information visit, www.cc.com.mt . The information, view and opinions provided in this article is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri Investment Services Ltd. has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.