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I've published more than 2,300 videos on day trading over the years, and at least one thing stays the same: new people come into the business and want to know "the secret" to day trading success.
Some may have dabbled in it, and all have heard stories. I've discussed myths elsewhere, so today, I'll cover four vital ingredients for success.
If you miss just one, you're toast.
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1. You need a baseline of knowledge and skills
I've made literally tens of thousands of trades and am still learning. Fortunately, you can become a day trader — with training wheels on — after a relatively short time.
How short? It depends on you. If you have a full-time job or are in school, it'll take longer. You need to carve out a few hours per week, every week, to acquire the truly minimum skills and knowledge.
Speaking of knowledge, much of what you need to do is unlearn what you might have heard about how day trading is nothing more than gambling, how it's about "sticking it to Wall Street," and so on. After you remove the head trash, you'll make room for learning the basics about how to read charts, set up your trading station, and many more things.
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2. You must gain experience
When most people try to enter the workforce, they're stuck: Employers want to hire experienced people, but how can you become experienced if no one will hire you? Day trading is different and better: You can gain experience without risking a dollar of real money in the market. That's because you can trade in a simulator that's very close to the real thing, showing you what's happening in the market right now. If you have plenty of money and are fine with learning the expensive way, you don't need to trade in a "Sim." Otherwise, you're crazy not to.
3. You need a plan
By "plan," I don't mean what you intend to do, as in, "I'm going to trade at least three stocks today." Instead, I mean what you will look for. Day trading moves at Indy 500 speeds. My trading desk is set up to show charts that depict movements in increments of one day, five minutes and one minute.
When stocks are moving really quickly, I'll add a chart showing ten-second movements. Profitable day trading is hard enough if you do have an explicit plan about what you're looking for, and it's impossible if you do not. In the absence of a plan, emotions fill the void, and that's a prescription for having your butt quickly handed to you.
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4. You must develop patience
I list this element last because it takes the longest to put into place. Let's list some of the emotions you need to beat back to not take action:
- (Ego): Successful people have a bias for action! Why are you hesitating?
- (FOMO): I missed that last opportunity, and I'll be damned if I do nothing while others say they're making a killing.
- (Revenge trading): I can't end the day in the red, after that last terrible trade. I gotta fix that situation now!
It's really difficult for humans to develop the reflexes and patience of a spider, but that's what you need as a day trader. It is exhausting to sit at your monitors and concentrate on trends measured in seconds and minutes — while you continue to do that for two hours. Yet any non-trading "civilian" would look at you and conclude that you're doing nothing.
Meanwhile, beneath the surface, you're paddling like crazy: You might have two or three stocks on your monitors with all their charts up. You're keeping an eye on the news, where there's mention of a drug getting to a new stage in its review by the FDA.
You watch certain key ratios and indicators for the market's reaction to the FDA news. One of your buddies in your online trading chat room mentions a possible breakout that's developing on a different stock you both follow, and you focus on the size of the last few trades that flicker by every few seconds. False alarm.
These actions might happen in a couple of minutes, and you're only ten minutes into the trading session. Lather, rinse, repeat.
With all this information pouring into your brain, it's hard not to take action, especially when every trade you see is, by definition, two other people taking action—the buyer and seller.
One great tool for developing patience is to use a journal. After your trading session, write down a few details about the trades you took and how much you made or lost. Did you follow your plan, and if not, what happened? Also note any observations, like wondering if your losing trades happen at a particular time of day. Could it be a pattern? It's something to keep an eye on.
You will also boost your patience by talking with like-minded traders. I don't mean the randos who boast to the world about their conquests and lick their wounds in private; I mean people for whom you develop respect and rapport over time and whose observations you've come to take seriously. Day trading is not a zero-sum game where someone else must lose for me to win. For all I know, the seller of the stock I bought just booked a nice profit. People can win by helping each other out.
Of the four ingredients I list for day trading success, patience is not only the hardest to acquire but might also be the most valuable. Keeping your patience muscle well toned will carry over into the rest of your life: dealing with family, friends and even lunatics who somehow got a driver's license.
