| Day Trading - More Science than Art |
Aspiring traders underestimate the importance of having the proper mental approach - they just want to know "how to do it" without realizing that you can never really know "how to do it" without the proper mind set. The proper mind set is the result of self discipline and habit. Without exception, all consistently profitable traders have it. Some developed it the hard way and for some it came easy. But none of them started trading and went on to have success without these habits. Before you can develop these habits you must first understand the Trader's Mentality. The trader's mentality is looking at the stock market as a profit generating market in motion. Traders don't have an investor mentality. Traders simply look for potential price movement. Traders realize they don't make a dime studying balance sheets and P/E ratios. Their focus is on making small, consistent trading profits with as little risk as possible. Day traders look for small moves they can make several times every day and close out all positions every day before the market closes. The trader's focus is on "what's happening now and how can I profit from it" as opposed to the investors focus of "how will a company's stock price rise over time".
The first and most important habit of a successful trader is to trade ONLY with Risk Capital., i.e.-
Many people have entered the activity of trading with money they could not afford to lose and as a result they started off trading with "scared" money. They' re fear of loss was bigger than they're desire for gain and they traded with an nervous and anxious state of mind. Scared money never wins. The way to begin is to determine how much you could afford to lose financially and then from that amount determine how much money you could afford to lose emotionally. Develop the habit of only trading with money you can afford to lose financially and emotionally.
Next, accept the full responsibility for your trades. Successful traders always take full responsibility for their own actions in all of life and when it comes to trading they're no different. In today's day and age it 's easier and more convenient to blame others for our actions or to lie to ourselves. Successful traders realize that their success or failure is all their own and while it may be convenient to blame the specialist or blame the stock picking service for a string of bad picks, the ultimate responsibility for their actions falls directly on their shoulders and they know it.
This is followed by the habit of managing your trades well. Without exception, every trading author on the face of the earth say's that cutting losses is one of their "cardinal rules" of trading. But if you've ever traded you know how your own mind can work against you when it comes time to sell at a loss. You 'll start rationalizing why you shouldn't sell - "it will come back", "it's just moving around", "I'll sell when it comes back to the price I paid", take your pick of excuses but none of them are the right way to think - and the next thing you know you've got a nightmare loss on your hands. Everyone has had this happen to them in the learning stages. Successful trader's identify their profit and loss parameters BEFORE they enter a trade. They set their stops and stick to their parameters.
It of course always helps to stay emotionally neutral. Successful traders don't get too high when they have a winning day and they don't get too low when they have a losing day. Taking a loss is as much a part of trading as is taking a gain. The difference is in how you emotionally deal with the losses and the gains. Successful traders don't let the market put them on an emotional roller coaster. Staying emotionally neutral is the key to long term trading success. New traders often experience "burn out" which is more a result of emotional ups and downs than anything else.
Learn to trade without certainty. Successful traders are comfortable with risk. They know that they can't wait for certainty that the trade will be profitable before they do the trade. They trade in anticipation of a pattern or event. This mind set is extremely difficult for new traders. New traders want all the facts before they do a trade and by the time all the facts are out the trading opportunity is gone, then they enter the trade and wonder why it didn't work. Accept the fact that you can't have proof that a trade will work. Get comfortable with risk and learn how to manage it.
Also all successful traders keep a trade journal of their trades and periodically review it as a way to refine their approach to profiting from the stock market. There is a tremendous amount of valuable information in your losing trades. Sometimes you can find easily identifiable patterns in your losing trades that you can easily eliminate. When reviewing their trade journals, successful traders don't think of them as profits and losses but simply results. They realize that their trading activities produce results and the results hold valuable information about themselves and offer the keys to improving the results of their activities. Keep good notes on each trade and review your notes often, it will help you trade better.
And finally, focus on 1 or 2 Techniques that Work. Rather than constantly searching for new strategies and techniques, the profitable trader will constantly use 1 or 2 approaches and nothing else. Most professional traders use only 1 or 2 techniques and nothing else. Even the most average of techniques, when executed with focus, will yield better results that the technique-du-jour if you're changing approaches every week. Find a system that works and work the system. The grass isn't greener on the other side of the fence. Learn your market, refine your personal approach to it and stick with it.
There are many trading strategies by various experts. Read up our following article on trading arsenal, acquaint yourself and then arm yourself for the kill.
Aru Srivastava
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