Trading has yielded some of the highest profits to those who dared to bet their money intellectually. Almost everyone today has access to online trading, yet not everyone succeeds exuberantly at being a day trader.
Trading is a naturally emotional experience. You have betted your hard-earned money on something complex to understand, and you are up against some of the brainiest people in the world.
However, do not demoralize yourself as there exist time-tested ways of phasing out emotions while trading and transforming yourself into a disciplined and calculated trader.
Skills Required To Become A Successful Trader
Day traders engage with the market and employ intra-day strategies to profit off rapid price changes in a stock or security. Here are some skills that you would need to ensure that you stay afloat in the competition and excel in the realm of trading –
1. Conduct a Self-Assessment
Successful day trading calls for a combination of intelligence, skills, and a commitment to a lifestyle. You must be adept with mathematical analysis, brimming with financial knowledge, aware of behavioral psychology, and a knack for trading.
Day trading demands –
- Long working hours
- Little leave from work
- Continuous self-learning
- Risk-taking capabilities
- Eternal commitment to mundane activities of the job
The right mindset is paramount in becoming a day trader. Be prepared to devote time, learn and evolve, and be mentally willing to take risks and sustain losses.
2. Devise a Trading Strategy
The only way to contend with the swarms of shrewd and talented people in the market is to establish a solid trading plan and adhere to it. Trading plans involve rigid and explicit outlines for your preferred areas to trade in the market, entry, and exit points for trades as-well-as risk management.
You must test your devised trading strategies against historical market information and on a simulated account in real-time to conclude their effectiveness. Trading strategies can make money for long periods but then fail unprecedentedly.
One of the best ways to try out your strategies is to first trade on a paper-trading account before betting with actual money. Paper-trading would help you control your emotions and better implement your devised strategies. Once you have established a solid trading strategy, adhere to it faithfully, and don’t forget to revise and update it as market circumstances remain mercurial.
3. Arrange Adequate Monetary Funds
Consistently generating profits is impractical as losses are inevitable in the game of trading. For instance, a day trader might suffer eight loss-making trades consecutively and be able to recover with profit on the ninth. To handle such unprecedented risks, a day trader must own a sufficient cushion of capital.
As Van Tharp mentions in Trade Your Way to Financial Freedom, opening up to the trading world with a handful of money is unquestionably a failure. Before you quit your job to work as a trader full-time, Tharp recommends possessing at least $100,000 for trading (Source).
Beginners can start with fewer amounts, as per their selected trading plan, their trading frequency, and other costs to incur. For you to trade actively, you must maintain a balance of $10,000 in your trading account (Source).
4. Understand Securities
Stocks, options, futures, ETFs, and mutual funds are all different trading forms. A trader should not jump into trading without first deciding what expertise to choose to trade. Without understanding the characteristics of securities and trading requirements, starting a trading strategy can cause failure.
Traders should know how margin necessities for futures, options, as-well-as commodities immensely impact trading money or how an interim assignment can annihilate the trading plan.
The idea of algorithmic trading might baffle you; thus, it is advisable to visit Alpaca to understand all about it and use it as your trading platform.
5. Integrate Strategy and Plan
Choosing appropriate trading strategies alone does not help you succeed in the market. The following considerations must complement your devised strategy and come up with the trading plan:
- How will you implement the strategy (entry/exit from a security)
- How much capital would you need
- How much wealth per trade would you require
- Which assets would you trade
- What would be the frequency of your trades
Reinforcing your strategy with answers to these questions can solidify your position as a day trader when dealing with volatile markets and ambiguous price fluctuations of a security.
6. Always Use a Stop-Loss
The market is subject to sudden and unexpected events, and even the most predictable trade can quickly reverse when the market pitches you an unanticipated curveball. Considering such volatility, successful traders invariably use a stop-loss order with no exceptions.
Stop-loss orders ensure that each trade has a specified exit that will trigger automatically every time the price of a security goes bad rapidly and without anticipations. Setting the ideal stop-loss orders that safeguard your capital without closing profitable trades too quickly is a skill that demands time and effort to master.
7. Evolve With Markets
You will never understand everything there is to know about the markets. However, committing yourself to a lifetime of consistent learning and enhancement is paramount to becoming a successful trader.
Irrespective of your starting point, you should regularly be improving the depth and breadth of your knowledge of the markets. Books, articles, or videos from different market professionals can broaden your horizons and intensify your grasp of market information.
Commit yourself to become a lifelong student of the markets if you desire consistent success with minimal losses and become a successful day trader in 2020.
8. Research Brokerage Charges
Day trading involves frequent transactions, leading to high brokerage costs. After meticulous research, choose the brokerage plan wisely. If you intend to deal with one-two trades per day, then a per trade basis brokerage plan is the way to go.
If the daily trading volume is significant, go for staggered plans or fixed plans. A broker also offers other trading utilities, such as trading platforms, integrated trading solutions that include option combinations, historical data, trading software, trading alerts, and several other features.
Beginners should commence trading with an economical basic brokerage package to suit their initial trading needs and later upgrade to other modules when needed.
The limited percentage of successful day traders have invested their time and efforts into building trading strategies and adhering to them faithfully. Before you give up your job to become a day trader, ensure that you have the motivation to learn, tweak your trading strategies, and bear accountability for your decisions and actions.
It is vital to choose the right stockbroker and trading platform as it will be a game-changer in your chances of being successful.