A well-defined strategy is essential in day trading. Without a specific system,
traders cannot be efficient in making profit. The strategy has to specify when
to get in and when to get out of a position. Every step that a trader must
take has to be spelled out because generalities in day trading are a disaster
waiting to happen.
The complete trading strategy involves the following three steps:
1. Entry and Exit Signal
2. Stop Loss Placement
3.Smart Money Managament
The strategy also
includes the following:
Always trade with the trend;
Cut losses short;
Never get emotionally involved with your trades.
Not all stock suits
Day trading. A day trader should never trade unlisted or thinly
traded (low volume) stocks. Some trade may make it hard for
you to exit your position quickly at a fair price. Trade only
high volume, well-known stocks.
The following are
the major Day Trading mistakes which if not avoided will lead
to failure in your trading:
1. Lack of a Trading Plan:
Many Day Traders start their trading without proper
plan. It is therefore essential to make out a complete plan befor entering into
trade. This includes the number of shares you will buy and at what price, the
price at which you will sell the shares (if they go up) and the price at which
you will sell the shares (if they go down) to cut your losses. You should also
decide, as part of your plan, how long you will hold the shares if the price
fails to move at all, and at what price you may want to add to or reduce your
position. After developing a plan stick on it and do not change as a result of
your emotions. Discipline is a vital key in Day Trading.
2. Failure to Control Emotions:
You should allow your emotions to control your trading
decisions to become a successful day trader. The most destructive emotions leading
to poor trading decisions are greed, fear and pride.
3.Failure to Accept and Limit Losses:
Another major contributing reason to day trading failure, is the reluctance of
many traders to exit from a losing position. Many traders hold on to losing positions
for far too long, in the hope that the share price will recover. Even worse is
the practice of adding to a losing position
so as to "average down". It is essential to limit (and accept) losses
in advance, in accordance with your trading plan, by pre-determining your exit
point if the stock price moves against you. Stop-loss orders provide a convenient
method of doing this.
4.Lack of Commitment :
Day traders who are unwilling to make a serious commitment
of time and effort to study and monitor the markets, engage in training and education
so as to enable them to learn about technical analysis, new trading systems and
methods, order routing software, etc., will almost always fail.
Many traders feel the need to hold positions in the
market at all times on every trading day. There are many occasions, however,
where it is best to stand aside and avoid holding any position in the markets
at all. Always conserve your trading capital for those trading days offering
good trading opportunities. It is better to avoid holding positions in too many
stocks at one time, as this complicates your trading plan and increases transaction
This is one of the most important personality trait of good Day trader. You won't
succeed at day trading unless you have a high measure of confidence in yourself.
Lack of self-confidence will result in doubt, indecision and second-guessing
which, in turn, will lead to missed trading opportunities and frequent losses.
You must believe in yourself to be a Day Trader.
In order to day trade successfully, you must develop a trading plan and consistently
stick to it. You must avoid changing your mind after decision has been
taken. Get out of the market when you have reached your objective and do
not let emotions like fear and greed influence your trading decisions.
Traders who are in the habit of being tentative or indecisive will never become
Most successful day traders have a true love or passion about their trading
activities. You should enjoy reading charts, dealing with numbers, reading
market news, interpreting quote screens, learning new trading strategies and
working independently in a fast-paced environment.
to Accept Failure:
In Day trading sometimes the trade will meet failures. So, for that they shouldn't
lose their confidence and they won't blame someone else for that lose. They
try to learn from the mistakes and move on to the next trade.
to Accept Risk:
You have to feel comfortable for the risk and should be prepared to lose money
sometimes. You shouldn't get afraid of the risk.
Good traders do not rush into trades. They take the time to select good trading
opportunities and do not place orders simply for the sake of holding a
position in the markets at all times. On some market days, where few good
trading opportunities exist, they are content to simply stand aside and
In day trading, a great deal of real-time information has to be absorbed, analyzed
and acted upon in intense bursts throughout the trading day. This requires
a great deal of concentration and stamina on the part of the trader, and
the ability to avoid distractions. Lack of concentration in Day trading
can doom a trader to failure.