I day trade futures for a living. For very little time commitment I am able to make consistent returns with minimum risk exposure. A day trader puts money into the market for just a few hours each week, and avoids the risk of holding positions overnight or during weekends when stop loss orders provide no protection against market swings. Here are the most important secrets to day trading success.
- Do not overtrade. Some people erroneously believe that day traders have to take a lot of trades. That is not true! You should take high quality trades, and keep out of the market if your entry conditions are not met. I take at most ONE trade each day. For example, in February I made 39% return on my capital and took just 14 trades. The leverage on futures trading is such that just one or two trades can give you an excellent monthly return, so why look for more? You need to be honest with yourself – are you looking for profits, or are you more interested in "action"? If you are addicted to the action, you are not a serious day trader.
- Have a plan. Day trading requires quick decisions. Sometimes you have to react to market situations within seconds. There is no time to mull over decisions, consider what has happened in the past, and agonize over your next step. You must have a plan which tells you precisely when you will enter a trade, what size position you will take, where your stop will be placed, how you will manage the trade, and when and where you will exit. I use a software control panel to specify each element of my plan, but if you do not have automation you must clearly write down all elements of your strategy and LEARN them so that you react instinctively to any market situation.
- Implement the plan flawlessly. Good plans are simple. They get you into high probability trades so that over time you have a statistical edge in the market which leads to profit. Good day traders implement the same simple plan day after day. Perfect execution is vital. You would be surprised how many traders fall down in this regard. They miss a signal. They press a wrong button and find themselves long when they should be short. They make an ad hoc decision to move a stop loss, even though it is not part of their plan. They grab a quick profit even though the profit target in the plan has not been met. Suppose you are risking 2.5% of your capital for a 7.5% gain and you make a mistake giving you a loser instead of a win. That is a 10% swing in your monthly return! Even if you just miss the trade, it is a 7.5% swing. One or two errors in a month has a huge impact on performance. That is why novice traders trading exactly the same strategy often achieve widely different results. I use software to achieve perfect execution of my plan, but if you do not have automation you must PRACTICE implementing your plan until it is second nature, and DISCIPLINE yourself to resist all temptations to stray from your strategy.
- Have patience. Things sometimes seem to happen slowly even for a day trader. You may not get a trade for a few days. You may have a string of three or four losing trades and be in a "drawdown" for a few weeks. If you are addicted to trading action, these periods will be excruciating. Too many people become day traders not because, as I believe, it is less risky, but because they get more opportunities to trade. If you find yourself watching each tick of the market as your trade progresses, you are probably not exercising the discipline and patience required to succeed. If you make a 10% return on your capital each month and allow your capital to compound, you will triple your capital in a year. This is so far in excess of what most businesses have to offer that you really should keep your eye on the big picture and avoid trying to rush the process. I use software to trade for me and am not even aware when the trading takes place. If you do not have automation, you must cultivate the self discipline to walk away from the trading screen as soon as you have done whatever your plan requires you to do. Trading should be a small part of your life providing you the wherewithal to live as you wish – do not let it become your life!