What Day Trading is and what is its more important element for success
Wednesday, May 12th, 2010This is a brief introduction to Day Trading. What it is, what it is not, and what is critical to become successful at it.
Although the word has a negative meaning, Day Trading IS speculation indeed. In Day Trading, one buys (sells) securities and closes their position within hours, that is, before the day closes – thus the name of Day Trading. While Day Trading is speculation, that does not mean that it is useless. To the contrary, it contributes to more “liquid” markets, which means it facilitates transactions.
Day Traders base their decisions on statistics and mathematical models (this is called “Technical Analysis”). Nowadays, orders are made through the internet. Processing is sometimes 100% computerized/automated (e.g. NASDAQ). Everybody can trade from the comfort of their home and make really good money. This is why there is such a buzz about it.
You likely knew that. Now let’s look deeper into what Day Trading is not, what else it is and what makes the difference between the good traders and the others.
What Day Trading is not …
Day Trading is NOT Investing, per se. Like I state above, it is speculation. Useful speculation.
Day Trading is NOT an easy way to make money – it requires hard work and commitment – … unless you trade with a good Robot (more on that in another article).
There is NO such thing as (bad) luck in Day Trading.
Day Trading is NOT about Ego. Always remain humble. No bragging when you succeed: respect the profession and respect other traders.
Day Trading has NOTHING to do with emotions. Keep your emotions in check when you day trade. If you don’t, take a break.
What Day Trading is …
Day Trading IS about flowing with the market. You never control the market. But if you respect some elementary principles, you find out that the market is your ally.
Day Trading MAY be a way to get rich but only for a minority of traders. Most traders hardly break even as transaction fees and costs remain high. Therefore, keep in mind that this IS a risky business. Unfortunately, most people forget some very basic principles that are essential to suceeding. I have known some very good, fundamentally sound traders. That is, technically sound traders. Unfortunately, their mental approach was imperfect and they failed eventually.
Learning the basics is easy. Defining a good system is not too difficult. Next, determining Money Management rules comes naturally. Sticking to the rules that you have carefully designed, under any circumstances, IS the most difficult part of Day Trading.
Succeeding
Therefore, keys to success are (beside a reasonably sound system such as the one I am exposing here): Psychology and thoroughly applied Money Management. That may seem obvious but you will understand it better along the way as you start your Day Trading career. By the way, during your journey to Day Trading success, you will also understand a lot about … yourself. You will realize that emotions run your life – something you cannot afford while Day Trading.
If there was one aspect of Day Trading that I would like you to remember, it would be that two things will be critical to your success – more so than any system will ever be. Psychology and Money Management. If you respect some key rules (that will suit you because you will have determined them) at all times, you will likely succeed.
People who have no significant experience cannot fully realize how important the mental approach is to Day Trading. Money Management is critical as well; but it is strategy. It is part of the system. On the other hand, your mental readiness will be 90% of your success because it has to be tested in the heat of the moment as opposed to being planned. The mental approach of Day Trading is like the foundation of a house. Should it ever collapse, the whole edifice will collapse. On the other hand, if your mental approach is solid, you will build success with relative ease.
Mark Kottaras has been a successful trader for more than two decades. He now specializes in Day Trading and Forex Trading, with a special interest in automated trading algorithms. He is testing and reviewing automated Forex trading systems on his website – http://forexpipsandtips.com/ – and he explains his Day Trading system on his blog – http://forexpipsandtips.blogspot.com/.
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