I am interested in becoming a day trader. What tools and tips should I be aware of before starting?
TRADINGFEATURED
"Stuff I wished someone had beat into my head before I started"
Stuff I wished someone had beat into my head before I started:
The majority of books, authors, and training out there are focused on the signal that gets you into a trade. And forums are crowded with traders yelling at each other about why you should be using the signal they like. Don’t get caught up in this.
Oddly enough, the really important elements of trading are rarely discussed or just mentioned in passing. It’s relatively hard to find books and training on the most important aspects of trading and training on these skills is very expensive. But ignore these skills at your financial peril.
When one signal fails to meet your hopes, you will rapidly try to find the next signal. You will likely system-hop until you run out of money.
You will likely suffer through some rather disheartening losses in the first 1–2 years of trading and this is the point where most traders give up. Only a few novice traders decide to look for the items in #2 on my list. It’s only when you realize that trading has very little to do with the signal and more to do with other obscure concepts do you start to break even or make money.
Less than 10% of traders make money.
Almost every trader you speak to will happily brag about their performance. You will begin to think you are the only trader not making money. Yet 90% of traders do not make consistent annual positive returns. People are truly ashamed of their performance and are unwilling to expose themselves. There is an intense social pressure to lie about performance. The bullshit is abundant.
Trading is not about hard work. Though you will likely work very hard at trading.
Anyone can place a winning trade. Anyone can place a series of winning trades. Very few traders can generate a consistent profit.
Losing is part of trading. It would help if you learned to lose most of the time. Your losses will mess with your head and you will likely make current losses even worse. The best traders know how to lose optimally and do not let losses mess with their noggin’.
Worse yet, your winning trades will mess with your head even more than your losing trades. A streak of winning trades precedes the worst losses. Understanding why this is will set you free.
The most important skills a trader can focus on are psychology (60%) and money management (30%). The other 10% is a combination of signal and the market you plan to trade. Most people are focused only on the signal and the market. Poor money management and their psychology will bite them over and over until the trading account is drained.
A trading plan is a really good idea. Should be no less than 30–40 pages and will address money management and psychology. The signal will be a couple of pages…max…otherwise it’s too complicated to consistently apply.
Maintaining a detailed trading journal where you log each trade for later analysis is a really good idea. It’s equivalent to using an accounting system to track your business.
In addition to journalling your trades - VIDEO RECORD your entire trading session and take the time to watch it later in the day. When placing trades, TALK YOUR SETUP OUT LOUD so you can later hear what you were thinking when you originally placed the trade. You will be amazed at your reaction to hearing your thoughts when placing a trade and realizing you missed half the steps or rules. Watching ‘the tape’ is akin to how professional athletes train and learn from their mistakes.
Price action is fractal…meaning you can look at any chart, without time and price….and you would be hard-pressed to correctly identify what time frame the chart is in (daily, hourly, 5 minutes…). I practice on low time frame charts for the simple reason that I can get many more trades in on lower time frames than I can on higher time frames. I can do 12–15 trades per day on a 5-minute chart, and that practice and repetition is very valuable. If I can only do 12 trades per week instead of 60, then my skills will improve at a slower rate. I do agree that higher time frame charts yield more stable price action (Daily and 4HR charts are more reliable than 1Min charts). But practice is practice, and the more you practice, the better you get. I sim-trade 1–10Min charts. I live-trade higher time frames. The price is fractal.
I wish I had known this when I started. I wish I had read the 20 books I eventually unearthed about money management and psychology at the very beginning. But the fact is that I needed to get knocked around a bit before I cried ‘uncle’ and calmed my ego down enough to go looking for the real information.
Good luck. You will need it every day.
Credit: Quora