If you want to get into day trading, any lesson you can get will help you a lot. Trading is not an easy thing to do. You are bound to make a lot of mistakes during your career. However, learning from the mistakes of others is definitely a better alternative. So, here are the seven most important lessons that should help you build your career.
1. Always execute your stop losses
If you have been trading for a while, you have probably already heard this one and know how important it is. However, if this is the first time you are hearing this, take notice. Everyone with a bit of experience knows of someone who lost a lot of money because of this. You took the time to think about it and decide when you should leave the position. Believe yourself and stick to that decision. Stop losses are there to keep your losses in check, and they are very important. However, there is a different aspect to it – panic selling. If you see your stock drop, do not panic sell. You made a prediction and chose the stop losses. Getting out prematurely will contain the possible loss, but it will also kill the potential for profit.
2. Do your homework
Having proper preparation in advance is very important. Make your decisions and don’t wait for the trading to start to think about new positions. When the market actually opens, you should have a plan and just stick to it. Making decisions while the trades are live is difficult, risky, and better left to others. The actual trading should basically just be the execution of a plan you already have.
3. Decide on your maximum daily loss
If you want to turn trading into a career you should learn how to survive on the market. If you don’t keep yourself in check, trading can be just like gambling. You can lose your entire account due to a couple of emotional decisions. Decide on the maximum amount of money you are willing to risk each day and get out if you meet it.
4. Wait for your first target before taking your profits
Taking early profits can have a negative effect on your portfolio. Keeping your loser trades at the minimum is great, but you should also try to let your winners run it out. Certain trading systems offer great profits, but lower chances to win. So, if you are using one of those, you won’t be able to make an income with early profits alone. So, similarly to stop losses, set up the targets for profit and never sell before it reaches the target. Of course, this doesn’t mean that you have to sell as soon as it reaches it. If the positions feel strong, keep it to maximize your profits.
5. Take partial profits
This is a method that can help you keep your cool during your trades. Two common issues new traders have when it comes to positive trades is selling too early, or too late. You can be up for a lot of money and assume the stock will keep trending upwards. However, that might not be the case. So, sell half of your shares when you reach the first target, but keep the rest. This way, you both capture the profit and keep the potential of the stock.
6. Double down on good setups
Not all trades are the same. Some will bring you a lot more profit than the others. And, if you recognize a powerful position, double down on it. Instead of just riding it out, use the profits from other trades to increase your position size.
7. If there are no good trades before 11AM, just walk away
Taking on new positions in the afternoon is rarely a good choice. If no stocks you are watching are trending positively by 11AM, they are not very likely to correct it on the same day. So, instead of trading, use that time to prepare yourself for tomorrow.