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Three Steps That Will Greatly Improve Your Day Trading
Like mastering the oboe or throwing a perfect spiral with a football, the only way to become a better day trader is through practice. But practicing isn’t enough. It’s only the first step in the three-step process of practicing, reviewing, and adapting that will enable you to dramatically improve your day-trading skills.
Once a day trader knows hows to place orders, calculate the ideal position size, and manage risk and has developed a basic strategy to follow, they should practice the art of day trading so they can consistently and correctly take the split-second actions necessary to make money under fast-moving trading conditions.
Then they need to take the time—on a daily, weekly, and monthly schedule—to review their individual trades and their trading strategy to determine what works and what doesn’t.
Finally, they will adapt their trading plan based on what they learned from their review. These changes will be done incrementally so trades that are carried out based on them can be practiced and reviewed and new adaptations to the strategy can be developed.
Practicing Day Trading
Reading articles or watching videos isn’t enough. Day traders need to repeatedly practice what they are learning before it will become ingrained enough to be useful in making trading decisions in ever-changing market conditions.
Practice isn’t just about putting in hours. It’s possible to day trade for years, putting in hundreds or thousands of hours, and never see improvement because you’re not working on a specific activity.
To practice effectively, focus on a particular activity. This is where the trading plan comes in. A trading plan is a document that specifically outlines how, why, and when a trader will enter and exit trades; how they will control risk; and what their position size will be. It also details which markets will be traded and when.
Practice involves following a plan so that progress can be tracked. If trades are taken based on random factors or psychological whims, then the trading results will take on the same unpredictable and random nature.
Practice day trading one component of the trading plan at a time, in a demo account, until the strategy becomes second nature. For example, you may go through charts and pick out entry points for your strategy. Do this until you can see all the entry points that your strategy gives. Day trading requires quick reflexes and precise timing. Practice so that entries occur exactly when they are supposed to, based on the strategy.
Then move on to placing the stop-loss correctly. Then practice placing the profit target correctly. It could take a couple of weeks to a couple of months to master each element of the strategy. After you get skilled at placing your entry points, stop-loss levels, and profit targets based on your trading plan, start to incorporate other elements of the trading plan. Practice having the perfect position size on each trade (risking 1% of account capital per trade is recommended) and every other trading element the trading plan covers.
While it may sound a bit odd, this whole time you are also practicing what not to do. Your goal is not only to follow your strategy and take all the trades it tells you to take (when conditions are favorable, based on your trading plan) but you are also practicing sitting on your hands when your strategy isn’t telling you to a take a trade.
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Trading is as much about the trades you don’t take as it is about those you do.
If your strategy doesn’t provide a trading opportunity, then do nothing. The patience required to wait for a valid trade signal is lacking in most new traders, but it can be acquired through practice. Practice being patient and pouncing when a valid trade opportunity arises.
The length of time traders should practice each element of their trading plan will vary. Typically, you should work on each element of the trading plan for 10 to 20 days. When you have mastered one element, add another, and then practice those two elements for 10 to 20 days, and so on. After about six months, a trader using this approach will have a good grasp of their trading plan, will have practiced their strategy for about 120 trading days, and will have a good idea of how to utilize it in all market conditions.
Over a six-month period, the trader will likely have seen very volatile days, very quiet days, trending days, ranging days, up days, and down days. Practicing in one type of market isn’t good enough. A trader needs to practice trading—and not trading—in all types of market conditions. For this reason, practice implementing the specifics of trading for at least six months before utilizing real capital.
Reviewing Your Day Trades
When you practice and follow a specific plan, you are making deliberate headway toward your goal of becoming a consistently profitable trader, even if the original plan isn’t a good one. The review process is where you get to critique both your ability to follow the plan (what you need to work on) and the plan itself (what changes the plan may require).
Self-review should be done a daily basis, while a trading plan review should be done on a weekly and monthly basis.
Self-review is looking at all your trades for the day and assessing how well you followed your trading plan on each. If you took lots of trades that weren’t part of your trading plan, that is a problem. If you look at the chart for the day and see trades that you were supposed to take but didn’t, that is also a problem. Additionally, look for trades where you may have deviated from your exit plan—holding on to a loss for too long, exiting a loss too early, or exiting at a different price than your profit target. In the future, you should pay special attention to reducing (and eventually getting close to eliminating) these problems.
At the end of each week and each month, go through all of your charts for that time period. Look for problems or areas of improvement within the strategy itself. This is your trading plan review. Ask yourself questions like:
- Did the price continue to move past my profit target with regularity? This may indicate that you could expand your profit target, extracting more profit (on average) from each trade.
- Did the price stall and reverse just before my profit target? This means your profit target may be a bit too large. Reducing it may actually improve the profitability of your strategy.
- Did the price often move just past your stop loss, then start moving toward your profit target again? This is a common problem and indicates your stop loss is poorly placed or the trade is poorly timed. Adjusting the stop loss or looking for a slightly later trade trigger will help alleviate this issue.
- Does a certain time of day correlate to more losses or wins? The success of a strategy varies during different parts of a trading day. Stick to trading only during the high-profit times, and take a break during the times you notice poor results.
There are a host of factors you can assess when it comes to your trading plan, but the four questions above will get you started. As you do daily, weekly, and monthly reviews of your trades, you will surely come up with some other ideas on how to improve your own trading and your trading system.
One of the best ways to review your trades is to take screenshots throughout each trading day, with all your trading points on them (entry, stop loss, profit target, and actual exit).
Adapting Your Trading Plan Based on Your Review
After a full month of trading, you are allowed to make small changes to your trading plan based on what you learned from your trading plan review sessions. Trades based on these small changes in strategy should be practiced for another month and then reviewed. Changes shouldn’t be made to the plan before the one-month period, as it becomes very easy to make changes based on individual trades (where anything can happen) as opposed to overall results (which are indicators of true performance).
The issues that arise in your self-review are worked on daily. With the self-review, your only goal is to follow the trading plan, whatever it may be. As the trading plan changes over time, so will your trading, but your goal is still to follow the plan. Your daily self-review doesn’t change the trading plan; instead, you work on your personality traits so you can follow the plan.
Strive to keep monthly trading plan changes small. This allows you to practice the small change effectively and monitor how those changes affect your trading. If you make lots of changes to your trading plan at once, it will be harder to isolate exactly which changes worked and which ones didn’t at your next review session.
The same concept applies to your daily self-review. Work on one problem at a time. Trying to correct too many problems at once means you aren’t focusing on each problem enough because your attention is too widely spread.
It’s better to focus on one issue at a time—and really make progress on it—before tackling the next issue.
10 Helpful Tips to Improve Your Trading
Posted on July 17, 2020 by J Crawford in Education, Stocks | 0 Comments
10 Helpful Tips to Improve Your Trading
When you first make enter the world of financial trading, a few minutes searching online for tips on how to make profits might get you overwhelmed. You will come across lots of tips, all of which seem pretty assuring. However, if you’re getting all this information at the same time, chances are high that it might do you more harm than good. Most of the time, beginners simply want to learn how to set up their trades, so they can make money, and avoid losing all of their investment in one swipe.
To succeed, there are some rules that you will need to read, understand and remember like your daily morning prayers. These are tips that have worked for all types of investors in the past, irrespective of the size of their trading war chest.
Here are a list of trading strategies and trading rules that work which should guide you and help you succeed in earning amazing returns from your investments.
Have a Trading Plan or Trading Rule
This is the foundation of trading. Your plan is a set of rules that will guide you throughout your life in financial trading. It stipulates how you enter or exit a position and your procedure for fund management. Planning might be a time-consuming task, but in the long run, it will be well worth your while.
Riding on the success of technology today, you can try out an idea before you put your money on it. A common technique that you can use is backtesting, where you use your ideas on past data to see whether your plan is effective. This will also give you an idea of how viable the logic behind your plan is.
If you try out the plan and yield good results, you can try it in the real market. The main idea here is to respect and stick to your plan. Doing anything outside this plan is risky even if it brings good results and will affect whatever results your plan might have already yielded.
Treat Trading Like a Business
To succeed in trading, you have to perceive your trades as your full-time job, not a hobby. You must show commitment to learn and become a better trader tomorrow than you were today. Trading might be expensive. There will be expenses, you will have to deal with risks, stress, and uncertainty. There might be taxes levied on your profits. From the moment you invest in financial trading, you should see yourself as a small business person. To realize the utmost potential of your business, you must have a clear-cut strategy, and always research before you make a move.
Trading is pure competition. You must always assume that the entity sitting on the flip side of the trade you are trying to cash in on, is making the best use of technology to beat you at your position. There are different platforms available at the moment that you can use to analyze different market positions.
Always make sure you backtest an idea before you risk your money. This will save you from frustration, stress and will save your account from unnecessary losses. At the moment you can get lots of updates straight to your phone, so you are always ahead of the game. You can monitor the market wherever you are in the world. Invest in the high-speed internet to increase the yield potential of your trade.
Protect Your Trading Capital
Saving money for your trading account might be difficult, and in most cases, it takes a lot of time. When you lose it, it might take you an even longer time to raise that money. You, therefore, have to be very careful about this account. Protect your account. This does not mean not making losses. All financial traders will make some losses at some point. By protecting your account, we mean to avoid the unnecessary risky behavior.
Learn from the Markets
Financial trading is more like continuing education. Each day in the market you learn new things. Most of the time, you will be using prior knowledge to get into trading positions in new markets or frontiers. Therefore, the learning process is more of a lifetime learning process.
With research, you will have information on useful facts, trends and even learn to read and interpret economic reports. Stay focused and be observant. There is so much that you will learn this way. Reading the economic reports and understanding them will go a long way in helping you perfect your trades.
The markets are often affected by world politics, economics, events, even things like the weather. This is a dynamic market, and things are always shifting in response to different stimuli. The more you understand historical events and how these affect the current events in the market, the better placed you will be to take advantage of the market when similar events happen in the future.
Don’t Risk What You Can’t Afford to Lose
We have mentioned earlier that funding your trading account can be difficult. Before you start using real cash, you need to make sure that all the money in your account is expendable. If this is not the case, you should keep saving until you get there.
It is common sense that the money in your account should be specifically for trading, and not for any other reason like paying for your rent, or tuition for the kids. Do not make the mistake of borrowing money from one of your expenditure accounts, in the hope that you will return it back. When it comes to financial trading, there is always the risk of losing everything. Therefore, do not risk money that you cannot afford to lose.
Develop a Trading Methodology
Coming up with a reliable trading mechanism might not be easy, but it is worth your time and effort in the long run. There are a lot of trading scams that are peddled all over the internet these days. Whatever the case, use facts to build your own mechanism. Do not throw caution to the wind and hope things will work out.
At the same time, do not be in a hurry to learn. Take your time, read and understand the information you come across online. Treat this as a career path. You have to start from somewhere, a school, for example, get a degree and so forth. The same applies to trading. You must research well to build the foundation of your mechanism.
Use a Stop Loss
What is a stop loss? This is a preset risk level that you are comfortable with, in every single trade. You can either have it as a percentage of your trade or a given dollar sum. When set in place, it limits your exposure to loss in every position you enter. The problem with a stop loss is that it might make your trades boring because you are aware you will lose some money in each trade.
Do not ignore a stop loss, even if you are winning. When you exit a position with a stop loss, even if you have lost the position, you will still have made a wise decision. If this loss is within the acceptable range in your trading plan, you will have made a wise choice. Ideally, you should try and exit all your positions at a profit, though this is not always the case all the time. A stop-loss simply limits your risk exposure.
Know When to Stop
Most people quit trading because of two reasons; either they are ineffective, or their trading plan is ineffective. With an ineffective trading plan, you will be making more losses than you had forecasted during historical testing. There could be lots of reasons for this, including market volatility, changing elements within the market and so forth. Through all this, you need to detach emotion from trading.
Take a step back and reevaluate your plan. Make a few changes here and there, or simply come up with a new plan altogether. If your plan is not effective, this is something that can be fixed, not that it is the end of your trading foray.
An ineffective trader, on the other hand, is someone who cannot follow the trading plan they have come up with. This can be caused by different reasons. In case you are not able to trade well for personal reasons, consider taking a break to deal with those issues, then come back when you are ready to trade without any distractions. Deal with personal or health concerns first, then resume trading with a clear conscience.
Stay in Perspective
Whenever you are trading, you should never lose sight of the big picture. A losing trade is not the end of the world, it is normal. At the same time, a winning trade is a step in the right direction, not your one-way ticket to riches.
What makes a big difference, in the long run, is the aggregate profits you make over the trading period. In financial trading, wins and losses go hand in hand. You simply strive to make more wins than losses. Be excited when you make a major win, there is nothing wrong with that. However, do not be so naïve as to assume you will never lose.
Realistic goal setting is key to staying in perspective whenever you are trading online. If you have a small trading account, do not expect to make humongous earnings at once. Simply work with what you have and build your stake over time. For example, a 5% return on a $5,000 account is very different from a 5% yield on a $5,000,000 account.
Discipline and Trading Psychology
To succeed in the financial markets, you must master some skills and traits. You need to read and understand the fundamentals of the company you are investing in, and accurately determine how a stock will move based on trends over a period of time. While these analytical skills are important, you have to keep your emotion out of business and learn to be disciplined – that is the psychology of trading. These two skills will help you move mountains.
You must be in the right mindset whenever you are trading online. More often you will need to make a split-second decision to get in or out of a position. It all comes down to the kind of trading mindset you have. In a split second, you can make or lose a lot of money. This is also where discipline comes in. You should be disciplined enough to stick by your trading pattern, especially when you master the art of identifying losses or profit makers in the market. Never allow your emotions to get in your way.
Expert traders barely get scared when they get unimpressive news about the market or specific stock. The obvious reaction would be to liquidate holdings in that particular counter or cash out to avoid taking further risks. This makes it easier for the traders to avoid prolonged losses. At the same time, they might also forego profits.
You have to understand how fear manifests. It is a normal reaction to anything that you consider a threat, and in financial trading, a threat to your profits. Where possible, try and put a value on fear. You need to know what you are afraid of and why.
When you identify this in good time, you will be able to anticipate certain movements in the market, and how to respond to them. This is also helpful when getting into certain positions in the market. Once you can get past the emotional aspect of fear, you can trade like a pro. Dealing with fear is not easy. It might take a while, but for your investment portfolio, being in control will be the best thing you ever did.
Don’t Be Greedy
Ever heard of the saying pigs get slaughtered? It is very common in financial markets. It simply refers to greedy traders who hold onto their winning positions for a very long time so that they can milk as much as possible from it. This kind of greed often affects your profits because there is a high risk of the market flipping on you in an instant, losing everything in the process.
It is not easy to overcome greed, especially since you are in this to make some money. It is a natural human predisposition to try and become better or earn just a little more than you already have. You must learn how to recognize this and build your trading plan around rational decision making.
Learn, understand and recognize the importance of these trading principles, and how they gel with one another, and you should be able to create a robust financial trading profile. This is not gambling, it is sheer hard work, determination, patience, and discipline. If you follow these rules, you should not have a difficult time succeeding in this highly competitive arena.
5 Deliberate Things to Do to Improve Your Trading
Many traders are simply putting in the hours, thinking that if they spend enough time around the markets, analyzing charts, reading books and studying courses, their skill level will improve. “Putting in hours” is necessary when you are starting out, as there is a lot to learn. But putting in hours won’t necessarily increase your profit potential. If you always do the same thing and make the same mistakes, putting in the hours will just ingrain those habits even more. To improve, make repeated and deliberate choices. Here are five thing to start doing today to improve your performance.
- Trading can be challenging, especially for those just beginning in the markets, but many early missteps can be corrected with education and experience.
- If you can’t figure something out, ask for help! Even if it seems like a small issue, there are are several resources both online and offline that you can seek out.
- That said, stick to your guns! Others can lead you astray and lead you to act emotionally instead of logically.
- Practice, discipline, and focus are key to keep you trading smart and strategically day in and day out.
Have someone in your life that makes you accountable for your trading. Call them your trading referee. Lapses in discipline can happen to anyone, so having someone in your life that keeps you accountable will keep those lapses to a minimum and the mistakes less costly.
This person could be a mentor, coach or a just a friend or family member (not necessarily a trader, but it could be) who you’ve told your plan to and who you keep updated on your performance. Often just knowing that you need to show your trades to someone—and those trades have to align with the strategy you told them you were following—is enough for most traders to avoid some mistakes. (See also: Get a Trading Referee and Improve Performance.)
A chat room, forum or regular meeting with people you respect is another option. Share what you are doing, what you are struggling with and what you are having success with. Ask for feedback. Anyone can get sidetracked, so be open to being told when you’ve gone astray. When your own discipline and self-awareness fail, you’ll have someone to help you get on track. Choose your trading referee carefully. Choosing the wrong person can do as much harm as good.
In addition to help from people, there are several online resources for trader education and training, and of course there are also reams of books on the subject that can and should be consulted when in need.
Avoid Other’s Opinions on Trades
Talking about strategies with other traders, or discussing your performance with your trading referee is fine, but avoid the opinions of others when it comes to specific trades. Trade your trading plan, your way. It doesn’t matter if a trader you respect says they are going to buy when your plan says to sell. You must follow your own plan. That is only way you can see what works for you—and keep your stress levels to a minimum.
Constantly changing your mind based on what other people, the news, TV or websites say will cause stress and lead to poor performance. Even great traders make losing trades, so trust your own plan. Avoid discussions while you are trading that could cause you to second-guess your positions, or abandon your methods all together. You put time into researching and creating your strategy. Don’t let someone’s else words ruin all that work.
A strategy may seem simple on the surface, but even a simple strategy is hard to implement in live market conditions. Every day, every trend, every pullback is slightly different; nothing looks exactly the same as it did in the textbook examples. To get proficient at implementing a method, practice it, a lot. Trade it in a demo account until you consistently see profit from it.
In sports, you do drills to create muscle memory, so you can instinctively act when the time is right. In fast moving market conditions, if you have practiced a strategy, you’ll be able to implement your skill at the right time. If you haven’t practiced, you’ll likely miss the opportunity, enter too early, or make mistakes with your position sizing. Build your skill base in practice sessions, so you’re not learning the hard lessons when real money is on the line.
Mental Clarity, Everyday
Each day take one minute before you trade to make sure you are feeling clearheaded, focused and present. Also take a couple seconds to reiterate that you’re here to trade, not check your social media accounts, email or watch online videos. When you trade, focus on trading. Close your eyes, center your attention on your trading plan and visualize following it. Check the economic calendar to be aware of events that may move the market so you aren’t taken by surprise during the day.
These small steps can save you thousands of dollars over the course of a year. If you’re angry, upset or unfocused, avoid trading. It only takes one day, or just one trade, to lose an entire account when not in the right frame of mind.
Take a few minutes and prepare for each day. Foster a state of mental clarity before you begin trading, and if you can’t establish that mental clarity, don’t trade that day. (See also: Characteristics of Successful Traders.)
Record Every Trade You Make
Monitor and review every trade you make. Take screenshots of your trades with entries, stop loss levels, targets and your technical/fundamental notes so you can easily review your trades at a later time. A screenshot is worth 1,000 words in a trading journal, because it shows exactly what you did in those exact market conditions.
If you’re a day trader, review your trades weekly and monthly. If a longer-term trader, establish a time where you’ll review your trades, such as quarterly or semi-annually. If your trades last a long time, take a screenshot at the time of the trade, and a screenshot when you get out (showing everything that happened between entry and exit).
Careful review of your trades will show what your common mistakes are—which you can deliberately work to improve (practice)—and what you’re very good at, which you could potentially capitalize on more.
The Bottom Line
Being a profitable trader takes constant work. Profitable trading is not a destination; it’s only a state made possible by deliberate and practiced actions and choices. As soon as a trader stops following those deliberate and practiced actions, they will fall out of the profitable state. Having someone to keep you on track will help keep these lapses to a minimum. So will avoiding the opinion of others on particular trades. Be focused every day you trade, and if you are not, don’t trade that day. Finally, record everything you do, taking screenshots and keeping notes. This will give you definitive feedback you can use to continually and deliberately improve your trading methods.
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