Successful Tips for a Day Trader

It is a well-known fact that the majority of day traders incur losses in their trades. But there are a handful of successful day traders that consistently make healthy profits over the longer-term. The question is, what really makes the difference between profitable and unprofitable day traders? The answer is, successful day traders possess a number of characteristics that their unprofitable counterparts do not. If you want to be a profitable day trader, read through this list of successful day trader characteristics in order to determine what you can do to improve your performance:

Adjusting to the market. Financial markets are entities that are constantly changing. They are influenced by a myriad of economic, political, and social factors that we have no control over. As much as technical analysis and identifying patterns is crucial to profiting from day trading, their effectiveness can only take you so far. A good day trader must be able to spot external factors that will have an impact on the price of a financial instrument and adjust his strategy accordingly.

The ability to stay neutral. You cannot let your emotions get in the way of objective trading. A successful day trader does not think the whole world is coming to end when he loses $1000 on a trade just like he doesn’t open a bottle of champagne every time he makes $1000 on one. He doesn’t let the outcomes of individual trades guide his strategy. Instead, he focuses on the overall outcome over a period of time and judges his performance upon it.

A business plan. Day trading is a business, and like any other business, it requires you to have a plan. A good day trader maps out every crucial aspect of his business. What are your start-up costs? How much do you want to work? What is the maximum loss you can sustain? What techniques do you want to focus on? These are questions that you should already have answered and put down on paper before you even made your first trade. If not, now would be a good time to do so.

Focus on techniques. Have you ever heard the saying “specialization is the key to success”? If you watch an experience day trader for a while, you will notice that he tends to stick to a few techniques that have proven to work for him. If you find a certain technique that works for you initially, test its viability over a period of time. If the outcome is positive, then stick to the technique. Experimenting with too many different strategies can be costly and is not a wise decision.

Money management. Successful day traders protect their accounts and manage their risks properly. With every trade they make, they risk a controlled percentage of their money (typically ¼% to 2%). If a trader has a $25,000 account and risks 2% on each trade, then the maximum loss he chooses to incur is $500. It is a relatively small loss when compared with the size of his account and will surely not spell doom for his day trading career. The key is to be disciplined enough to stick to your risk percentage.

Risk appetite. Day trading, by nature, is a risky business. A successful day trader must have a healthy tolerance for risk and be emotionally able to handle the idea of losing money. There is no comfortable trading pattern in this business that will earn you money 100% of time, so you have to get over your fear of uncertainty.

Risk Capital. A shrewd day trader always risks money he can afford to. He never trades with money that is set aside for paying off student loans, mortgages, or electricity bills. Knowing that you won’t have to live off food stamps if you lose all your money in day trading actually helps you focus better because the psychological strain is less acute.

To be a good, profitable day trader, there really is no need to re-invent the wheel. If you follow in the footsteps of those who have met with success, you have a much higher chance of doing the same. Use this knowledge to your advantage and be brave, but prudent at all times.