Day trading gets a lot of hype.
Everyone loves the idea of sitting down in front of their computers, staring at the monitor (or, in my case, monitors) for a few hours and pocketing a few thousand dollars by the end of the day.
Rinse and repeat.
Of course, it isn’t anywhere as easy as it sounds. First of all, it’s just as easy (easier actually) to end the day down a few thousand or more than it is to put up a profitable day. That’s just reality.
Second, trading in general isn’t just firing from the hip. There’s real work and analysis that goes into it. You have to be able to accurately and repeatedly spot trends, find profitable entry and exit points and then execute on those trades over and over again.
That’s one reason it’s so easy to screw up.
And it’s also why I’ve learned a ton of rules over the years to keep my trading on track and in the black. They include…
1. Turn off the Trailing Stops
Trailing Stops are stop loss orders that move along with the position as the position is accumulating profits. They exist to lock in your profits so that if a position goes against you, the position will be liquidated and you’ll save yourself the downside.
In action, they look like this…
While trailing stops play a very important part in short-term and swing trading, they actually hold you back when day trading. In fact, experts have found that using trailing stops for intraday trading actually lowers your profit potential by about 30%.
Using trailing stops when entering and exiting positions during the same day actually limited profit potential and prevented positions from realizing their full trading range for the day.
So I shelve them. Pay attention to your positions in real-time and don’t rely on stops when day trading.
And with over 90% chance of profiting each time you initiate the trade?
My good friend Roger Scott has used this strategy for 25 years, and his track record speaks for itself.
Now, he’s created a program to help other traders do it too and I just had to tell you all about it … plus it contains very limited risk.
2. Sit Tight During The First Half Hour of Trading
I get it, trading is exciting.
We all wake up in the morning raring the go and ready to hit the market first thing. But I’ve learned to resist that urge.
I don’t make any new trading decisions during the first half hour of the day, and I don’t change my trading plan or order placement based on whatever happens during that period either. Why? The first half hour of the day is mostly trading noise and emotional volatility.
You don’t want to be in that mix.
After the first half hour the market sets the tone for the rest of the day and allows you to make less emotional trading decisions.
3. Don’t Ignore Your Fundamentals
True, fundamental information isn’t going to help you very much when your position holding time is less than 6 hours.
But, it can help tremendously in showing the relative strength of your financial position based on how it reacts to the news.
For example, if you’re holding a long position in a stock that builds houses, a negative housing starts report that has no negative impact on your stock would demonstrate that the stock is extremely strong in the very short term. Paying attention to how stocks and other financial markets react to fundamental news is one of the most important skills traders must develop and practice on a daily basis.
Take a look at this chart of the Spider ETF.
Before the open on this day there was negative news about the federal government cutting its bond buying program, but still the market opened higher and remained higher for the first part of the trading day.
Lesson? The market at this time was still very bullish despite the negative news.
Those are three of my day trading rules. There are plenty of others, but just following these three simple tips will improve your trading performance and help you become a better trader.
But it all starts with being able to spot a trending market. Many novice traders are convinced that in order for a trading strategy to work and be profitable, it has to be complicated. But that’s just not true. There is zero correlation between complex strategies and profitability. Case in point, the best way that I know of to analyze market trends (and more) is one of the easiest techniques in the trader’s toolbox. Know what it is?