There are two key principles you must master to become a successful trader in stock market. You must become disciplined and you must learn to focus intently. About 80% of people who engage in this type of trading would be better taking their money to a casino and playing at the slot machines. Making money as a day trader really depends upon a keen awareness of the right information and excellent discipline including lots of ways that learning trading can be fun.
Think Like a Trader
Poker players have to be disciplined. Day traders should follow in their footsteps. Good discipline is about maintaining habits; good habits that can help you, most particularly, when things are not going the way you want.
As in a poker game, what makes the real difference, what separates the good players from the great players, is how well you respond to the losses.
Trading, you need to be consistent. You have to make a lot of decisions as a day trader and you probably won’t have that much time to make them. If you are disciplined, you will manage to act consistently, and in accordance with the pre-determined trading strategy or system set forth in your trading plan, even when, and most particularly when, things don’t seem to be going as you had planned, hoped, or expected.
To be a good trader, you should establish a trading plan and system that will govern your practices. Systems generally impose parameters and set out criteria. Habitually following such a plan or system is the exercise of good trading discipline. Reviewing your plan when you have found that it has not worked well is also a disciplined act.
Develop a Poker Face
Never allow your emotions to rule your trading. Countless inexperienced traders respond to their emotions about a particular stock. Many become afraid and reluctant to take losses. They act on their fears; they respond by refusing to sell the stock, hoping, often in vain, that it will rise again. Unfortunately, it’s only by accepting losses and responding to them in an unemotional way that you can hope to minimize them and thus become a successful trader, able to capitalize on your wins.
On a related subject, you should never let greed influence your decision making either. Even the best day traders make this mistake. As the prices rise, they grow reluctant to sell. You can see the wheels turning: their trading plan and system go flying out of the window as they watch the ticks, thinking all the while of the profits increasing and increasing.
The stock price will rise and they will make even more of a profit for the day. However, and it happens more often than not, the share price subsequently drops, causing their gains to dwindle. If you don’t act fast enough, if you’ve become sufficiently distracted, you’re gains can easily become losses. Fear and greed have no role to play in the life of a disciplined day trader.
Trading is a business
You need to establish the hours you’re going to work, how you’re going to work, what your annual and monthly expenses are going to be, what you maximum loss can be per day and per week, what your financial and business objectives are, and how you’re going to record your progress. A comprehensive business plan is going to be necessary before you go into business as a trader. You need to decide which companies and programs you are going to trade with and this requires work. Plan well ahead and follow through with your plans to avoid unnecessary problems down the line.
Another habit of the very best traders is keeping a detailed journal of their trading activities. This is a great way to have an accurate reference of your trades and it’s also a good way to build on your habits of being analytical and focused when it comes to picking stocks and trades.
Many traders contact friends and colleagues for help. Advisors are usually on standby at the major investment companies as well. The point is, if you go to someone for advice about trades, the first thing they’re going to ask yourself which trades you’ve had problems with. If you can’t answer this question is some detail, you’re not going to get much meaningful advice and you’re probably going to be told to start keeping a journal anyway.
When it comes to your trading habits, the best advice is generally to follow two or three techniques that you’ve seen work well. This is definitely a trait of the great traders, who focus on between one and three techniques. The advantage of this is focus. If you’re watching several different stocks and using several different techniques, you’re thinking about too much. Mistakes are almost a foregone conclusion.
Another way of putting it: a jack of all trades, master of none is typically a low paid unskilled worker. Experts are always better paid and if you focus on just a few techniques for stock trading, you’ll become an expert on the technique you are using. Use it again and again; it will keep working, so will you.
If you manage to become an expert in only one to three trading techniques, you’ve also have enough energy left to become an expert in money management as well. Great poker players are great money managers and risk managers. Great traders are also great money managers and risk managers.
Traders and poker players respect the risks they take. The best poker players are tight aggressive players. They play sensibly, betting small amounts and backing down when they don’t have good hands. The difference is: when they play with a good hand, they’re aggressive. They are ruthless about following through. Great traders need to behave the same way.
Great traders protect their accounts. They trade usually with as little as ¼% to 1% per position; no more than 2%. Before you blow out your seed money chasing down hopeless stock, you need to realize: if you lose all your money today, there’s no way you’re going to make any money back tomorrow. Discipline in money management is what’s going to get you through the dry patches, the small and careless mistakes. It will also help you to manage your emotions to prevent a whole host of problems from plaguing you.
Not all traders have large accounts to work with. Many have very small accounts, but if you apply the ¼% to 2% rule, you’ll be betting amounts so small you’re hardly going to blink an eye about losing a little here and there.
The final tip to becoming a great trader:
only trade with money that you can afford to lose. We’ve said this once and we’ll say it again. If you do your reading on day trading, you’ll definitely hear this again.
Great traders use what’s called risk capital. They definitely do not trade anything close to all the money they have in the world because, if you do this and lose, there’s no way you’re going to make up what you’ve lost. Trade with money you can’t afford to lose and you will compound many of your potential problems. You will make a whole range of unnecessary mistakes and, before you know it, your assets will be at risk.
If you are disciplined and sensible enough to trade with risk capital, you can rest easy at night. You can have a bad day and maintain your poker face. You can remain unattached to each of your trades and you will be able to follow your trading strategies and plans without blinking an eye.
Most successful people become successful by following the example of others. Reading and learning are part and parcel of any job, any profession; particularly when you want to become successful. Follow the guidelines above to become a better day trader, but be sure to make use of the internet and your local library and bookstore to explore other perspectives and more advice.