Let’s start by answering the question “What is day trading”? Day trading is a type of trading, which involves entering and exiting positions within a single trading day. With the rise of the internet and sites that allow people to trade from home, it is easy to see why day trading has picked up, even among people who have no understanding of how the markets work.
Since it is easy to join and get started without training, many people sign up and lose their savings in a very short time. Day trading can definitely be lucrative, but only if you know what you are doing. In this article, we are going to go through lessons that I wish I had learned before I became a day trader. They will help potential day traders or people looking for a side gig, to avoid the pitfalls that trip up almost every newbie.
Lesson 1: Treat day trading as a real job
Day trading is definitely not a side gig and you shouldn’t treat it like one. When the brokers convince you to join their platforms or the traders show you the promising life waiting ahead, they don’t tell you that the people who make it in day trading consider it to be a job.
It takes actual work, analysis, a keen mind, lots of knowledge, and a real passion for it. Even if you do not like trading passionately, you still have to learn everything you need to know about trading, educate yourself on risks, and finally remember that the dream sold to you is always the result of a lot of work.
Treat day trading as a real job and you will be rewarded eventually.
Lesson 2: Entering orders is not the main work
Anyone can enter orders. When you look at a trader entering orders, it all looks so easy. It looks so easy you might start to think ‘I could do that! It is so easy!’ Well, not so fast, newbie. Day trading involves analyzing and then watching the numbers to make sure everything is playing out as you expected.
The work itself begins with the analysis. You must understand that orders with the potential to gain returns are not the product of guesswork. They are born of a keen understanding of the asset and how it could shift during the day. Watching the small price changes that occur is a big part of it but the decision to enter an order comes from actionable information that may yield something.
Lesson 3: Do not overcomplicate things
After all, you are not on the trading floor of Goldman Sachs. Most of the stuff you see on a screen when trading is filler material. It is used by pretentious people who somehow feel like it makes them better to understand every single indicator on a chart.
So, what should you focus on? When day trading, in the time that it takes you to look at hundreds of studies, tools, and indicators, someone has opened and closed a trade. Your focus should be on price, volume, some trendlines, S/R levels, and maybe two moving averages to begin with. Keep it simple and you won’t trip over yourself too often when you start.
It does look cool when you have two monitors set up on a desk with powerful CPUs to give you an edge but chances are, if you are a beginner, you don’t need any of those things. Start simple, keep it simple.
Lesson 4: Don’t trade everything you see
There are some traders out there who take the versatile approach and try to trade everything. Even in business school, diversification is touted as the way to go. However, that only works in your favor when you can manage all the pots that you’re dipping your hands into.
As a day trader, specializing in what you do is what will make you better. Get good at one asset or instrument and master it. Do you know what that does? It makes you money consistently once you get good at it. Then, you can add something new to your arsenal, or not. You do not have to trade more than one instrument or asset if you do not have to.
People who make a good and consistent living tend to specialize in certain entities that they trade. This allows them to increase the number of winning trades, to get rid of mistakes or cut down on losses through smart leveraging, good risk/reward strategizing, and constantly learning everything they can about their respective securities.
Lesson 5: You must seek professional help
Trying to figure out day trading by yourself might be easy if you’re some sort of numbers savant maybe but for most people, learning from others is the best way to go. There are tons of groups online where traders get together under the banner of a veteran trader and learn strategies they can reproduce or copy while learning something new in the process
There is money to be made, only if you know what you are doing. Going in with no help from experienced people usually doesn’t work in your favor. That’s not to say you cannot learn independently and still make money. If you can, you are either lucky or a natural born day trader. If you feel like you need help with the knowledge gap, do not hesitate to find mavens to guide you through.
Lesson 6: Ignore the narratives and concentrate on facts
Stories can be facts but stories can also mean losses. What do we mean by story? Well, you see the day traders make their money opening and closing positions quickly throughout the day. There is always a story floating out there about why the stock went up or down.
You would do well to ignore the story. If it is not a news alert that’s relevant, it probably isn’t worth paying attention to. Learn to walk past the stories and stick only with what you know. The narratives can lead to decisions made based on what you heard, instead of what you know to be true from your analysis. Often, these decisions can be painfully costly.
Lesson 7: It is never all or nothing
Day trading is not a fight to the death because your bank account will not survive an ‘all or nothing’ strategy. Scaling is your friend. By scaling, you can add to your positions with time. As you learn how losses and profits occur, you learn just what your limits are.
That way, you will always live to trade another day. If you get wiped out almost immediately (which is more common than you think), that makes you dumb money, which doesn’t just sound insulting, it means you might quit when you could have had a successful time day trading.
As with anything complex like the markets, taking things one step at a time is the way to go. Do not mistake your trading platform for a casino table, because day trading is not about making gambles per se. It’s about informed decisions that come from careful analysis with very low levels of risk.
Lesson 8: You are not here to win
Stop scratching your head and let us explain. You will be wrong a lot. You will lose. How much you lose depends on who you are and what your account size is. But you will lose, no matter who you are. So, why can’t you just win, no matter what?
The thing is, you cannot control the markets. You are at the mercy of the markets. That is why any professional trader will tell you that learning about the markets is your best bet. If you understand why shifts happen in price, you will understand how to anticipate them and what kind of risk you should take when opening a trade.
Get it through your head that all traders get it wrong, even the very best. The secret here is to win more than you lose. For that reason, your risk/reward ratios on your setups need to stay sane, you need to cut your losses quickly and always find out what you did wrong, to avoid repeating a mistake too often.
Here’s what to keep in mind
Day trading can be as hard or as easy as you make it. The first step which we stress for not just beginners but somewhat experienced traders as well is to always know your stuff. Whatever asset or instrument you pick to trade, know it so well that you don’t need narratives to know why its price moves.
If you have all the information, you can make decisions based on facts instead of emotion and/or unreliable narratives.
Never take on more risk than you can. Never open an order with more money than you have or can afford to lose. With that in mind, become prepared as best as you can and start trading! Use gradual scaling so you negate the risk of losing everything all at once. With dedication and proper education, you too can join the list of successful traders that managed to make a living from it.
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