Interest in day trading is rising as people look for ways to make money online. As a result, the number of people becoming day traders has jumped sharply in the past few years. A trading-focused company like Robinhood has over 12 million users.
Unfortunately, trading is a difficult way for you to make money. Indeed, most people who venture into active day trading don’t succeed. If 100 people started to day trade today, only less than 20 will be successful in the long term.
The most successful day traders are those who take the time to learn about the market. They also take more time to craft their day trading strategies and test them over time.
This article will explain some of the top things to consider when starting your day trading journey and how you can make your trading career sustainable step by step.
Success is the sum of small efforts, repeated day in and day out
The bottom line of achieving success in day trading is summarized using this quote by Robert Collier. In it, he defines success as the sum of small efforts, which are repeated on a regular basis.
One of the most common reasons why most people don’t succeed in day trading is that they are always in a hurry to start making money. In most cases, a person will discover day trading, open a brokerage account, deposit funds, and then start trading.
As they do this, these people barely have knowledge about how the financial market works. They also don’t have any knowledge on the strategies that are essential in ensuring success in the market.
Instead, the most successful traders view it as a journey, which must start with preparation and then with a single step.
In this, they take a few months to learn more about how the market works and some of the best strategies that people use.
It is worth noting that the biggest players in the financial market are hedge funds and institutional investors. These people have done it for decades, which has helped them master the market well.
Therefore, it is hard to beat them if you have no experience or a trading strategy.
Steps to becoming a successful day trader
No need to rush
If you are new to day trading, the reality is that there are so many things you need to be aware of. Some of these basic things are:
- Type of assets – You need to have an understanding of the different types of assets and how they work. The most popular assets in the market are forex, stocks, bonds, commodities, and exchange-traded funds (ETFs).
- Spot, futures, options – You will also need to learn the difference between the spot, futures, and options market. Spot is where you buy or short an asset at the prevailing price. Futures and options are complex derivatives that involve a strike price and an expiry period.
- Analysis methods – You also need to learn the various types of analysis methods in the market. The most popular of these methods are fundamental, technical, and price action.
- Risk management – Additionally, it is important to learn more about risk management, which is a process where you mitigate risks when trading.
- Psychology – Further, it is important to learn more about psychology in trading. This is where you learn about how to manage your emotions when trading to prevent mistakes.
Therefore, it is impossible to cover these things within a month. As such, you should not take day trading as a 100m race. Instead, you should take it as a marathon, which takes a longer period to learn and master.
As part of this learning, you will also need to focus on creating the strategy and backtesting it effectively.
The bottom line is that it is not possible to become an overnight success in day trading and investing. Everyone who has been a successful trader has taken months or even years to achieve this success.
If you can become profitable quickly, this is good. But you don’t have to force your hand.
Create a trading strategy
The next stage for achieving success in day trading is where you create a trading strategy or approach.
To start, you can familiarize yourself with the most common trading strategies, but as your experience grows, you should fine-tune a strategy that fits your needs.
The best way for doing this is to use a demo or a practice account. This is an account that is similar to a real account, with the only difference being that it does not have real money.
A demo account will help you understand how financial assets like stocks and currencies move. It will also guide you into the different types of charts like:
- Point & figure.
Further, a demo account will help you understand the different chart patterns like triangles, head & shoulders, and rising wedge.
Therefore, you should use this demo account to create a strategy and backtest it. At Real Trading, we recommend that traders implement at least 10,000 trades before they move from a demo account to a live one.
Have a trading routine
As you develop your trading strategy, you should also create and refine your routine. A routine is simply the steps that you take when opening and closing your trades. It also involves the time of the day when you day trade.
First, on the time aspect, you can decide to focus on the American session, which starts at around 9am ET and ends at 4pm (ET). This session is known for its high volume and volatility. You can also start your day by looking at the pre-market movers.
Also, depending on the assets you trade, you can also focus on the Asian and European sessions. If you are a forex trader, you can take advantage of the intersection of the Asian and European and European and American sessions. These intersections have the most volume.
The other part of the routine is to look at the factors that must be in place for you to execute a trade. For example, if you are a moving averages crossover trader, you should ensure that this crossover has happened before you trade.
Similarly, if you rely on chart patterns like head and shoulders, rising and falling wedges, and triangles, you should ensure that they have happened before you open the trade.
There are other routines that you can use such as checking the earnings, economics, and split calendars.
A trading journal
The next thing that will help you become a successful trader is to have a journal. A journal is a document where you document all your trades and their outcomes.
Some important columns to have in mind are the opening and closing prices, reason for opening the trade, and profit or loss
The benefit of the journal is that it will help you identify your trading mistakes and then rectify them. It is also a good point of reference when you are trading.
The journal will also be useful as you develop your risk-reward ratio. For example, if 80 trades are profitable and 20 are not, you can use this figure when creating the strategy.
The next stage is where you go live by depositing funds into your account. As you will note, trading in a live account is very different than using a demo account since funds are at stake.
The bottom line is that you should use the live account just as you did in the demo one. Some of the top things to have in mind are:
- Avoid key biases – Some of the top biases to avoid are overconfidence, anchoring, recency bias, status quo bias, and hindsight bias.
- Always protect your trades – Use a stop-loss and a take-profit, which will protect your trades.
- Limit your leverage – Leverage is an important part of trading. You should use it moderately since a big one will expose you to substantial losses.
Maximize your hard and soft skills
You should seek to maximize your hard skills such as technical analysis and price action. Soft skills include discipline, teamwork, and communication. Other soft skills to always have when day trading are patience, creativity, and time management.
Further, you should focus on continuous learning. Doing this will help you learn new skills, identify new strategies, and boost your existing approach. As you do all this, you will find out new strategies that are likely better than your existing ones.
Risk management is a core part of day trading because it ensures that you maximize your profits while limiting your losses.it involves identifying, assessing, and mitigating risks in the financial market.
There are several risk management strategies that you should use in your trading account. Some of these approaches are using a small amount of leverage, having a stop-loss and a take-profit, and not leaving your trades open overnight, and not overtrading.
Transitioning from a new to an expert day trader is not an easy process, which explains why most people don’t make it. We believe that using these steps will help you increase your chances of being a successful day trader and investor.
External useful resources
- The Right Way to Achieve Success: Step by Step – Forbes