The simple fact is that 9 out of 10 people who begin day trading will fail. It is easy to get blinded by the way in which media portrays trading as a fast paced and highly lucrative career. Although this can be true, what isn't so evident is the amount of patience and dedication day traders need to commit in order to learn the art of intraday trading. Arguably, the greatest investment a trader can make is that of time, something which you cannot possibly place monetary value on. Once we know that the majority of traders fail, what exactly is it which makes the minority of traders successful?
The single thing which differentiates profitably traders to unprofitable traders is having a day trading strategy. This simply means having a refined and elegant system which provides the trader with both the boundaries they need and helps them remove emotion from their trading habits. Let me explain further.
There are two phases a trader will go through - the first is the learning phase. During this time (which can last anywhere up to a year and beyond) the trader is in a constant learning mode, picking up all the nuances of the markets as they witness the daily ups and downs of their portfolio. During this time of learning, one is able to identify certain characteristics of market behaviour. For example, behavioural trading is a fairly recent phenomenon based on individual agent trading habits rather than combined market physics. A trader will begin to notice behavioural trading during certain hours of the market open (high trading volume in the first hour, low trading volume at noon). Similarly, this trader will also start noticing the nuances in technical analysis - the way in which a price will repeatedly hit a top or a bottom and form certain patterns (interestingly, technical analysis of past price movements is largely based on behavioural trading).
The point is that during this learning phase there is much information and data for a trader to assimilate. You may very well be in this stage now. Over time, after you begin to learn how to read the market, you should look to develop a mechanical trading strategy which sets clear points for entry and exit. This will make the learning phase that much easier because instead of trading on 'gut feel' you will trade on a daily strategy which you can later refine on. So if you take your exits too quick, simply refine your strategy; or if you take too much risk, reduce your position size, and so on. Doing this over a course of time will allow you to build your own custom made intraday trading strategy.
Don't let the learning phase put you off - it can be fun! Just keep a trading diary, then at the end of the trading day sit back, with a cup of hot chocolate, in your favorite all black converse sneakers and analyze your day.
The next phase a trader goes through is the action phase. In this phase the trader has already learnt how to read the market and now simply employs his own custom rules for entry and exit. During this phase a trading strategy is hugely important in order to stop the trader from using emotion and 'gut feel' to make trades. By avoiding this, the trader will avoid making careless errors which can potentially cost them greatly. This is something all day traders, including myself, learn from experience.
In conclusion, the one thing which separates a successful intraday trader from an unprofitable intraday trader is their strategy. The specifics of what the strategy entails is not so important as this can be refined over the course of time and experience, but what is important is having the discipline to stick with it and make it better. Watch your trading improve now.
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