Trading is an inherently emotional experience. You’re risking your hard-earned money on something that is complex and you’re going up against some of the smartest people in the world. So before we even get into this topic, let’s just get it out there right now that day trading is extremely difficult and most people lose money day trading. You can see the disclaimer we have at the bottom of this page that highlights the struggle.
If you are thinking about learning how to trade, assume you will fail and lose money, and for that reason, trade in a simulator before you put real money on the line. With that said, let’s talk about what hte process is like to become a successful trader, knowing that it’s probably less than 1/10 who reach the end of the road here and find profitability.
How to Become a Successful Day Trader
Experienced professional traders have developed these top 8 rules that every successful trader needs to follow.
These rules in themselves won’t guarantee that your every trade is a winner, but they will provide you with the foundation upon which to build yourself as a successful trader and achieve the kind of freedom and luxury that most people can only dream of.
Make a Trading Strategy
The only way to compete with the hordes of smart and talented people in the market is to make a solid trading plan and stick to it.
Trading plans involve strict and explicit outlines for the areas of the market that you will trade in, entry and exit point for trades and risk management. Trading strategies can be back-tested against historical market information and tested on a simulated account in real-time to establish their effectiveness.
Once you have developed a solid trading strategy, stick to it religiously, and don’t forget to constantly be revising it and updating it as relevant market circumstances change.
Think of Your Trading Like a Business
A business has costs, revenues, profits, taxes, capital investment, and so on. This is how you want to think about your trading as well.
Your trading is not a job where you get paid by the hour or a hobby where you get to come and go on a whim. Your trading is like a small business that needs to be nurtured and grown into a solid, viable endeavor through time and effort.
Always approach your trading as if you were a small business owner.
Make Use of Available Technology
One thing you can be sure of when trading is that the people on the other side of your trades are using every technology available to them to find and maintain their trading edge, so you should be doing the same.
Whether it is using the latest charting software, downloading the most high-end apps for tracking your investments or streamlining your trading set-up, augmenting your performance with the latest technology is a constant process that never ends.
All successful traders embrace the latest technologies and use them to get any advantage in the market that they can.
Protect Your Capital
Missing out on winning trades and waiting for the next opportunity may seem painful at the time, but that is how you maintain your capital in the long term, and ensure a steady income from your trading.
There will always be another great trade tomorrow or the next day, the same cannot be said of your ability to raise fresh capital after incurring major losses.
Successful traders know that it is better to let good trades go by so that you can knock the perfect ones out of the park every time. Don’t risk your capital on trades you aren’t sure of.
Become a Life-Long Student of the Markets
You will never learn everything that there is to know about the markets, far from it. However, committing yourself to a lifetime of constant learning and improvement is essential to becoming a successful trader.
Whatever your starting point, you should constantly be improving the depth and breadth of your understanding of the markets. Books, articles and videos from all kinds of different market professionals can help you to broaden your horizons and deepen your grasp of important market information.
Commit yourself to becoming a life-long student of the markets, and you will never stop becoming a better and more successful trader as a result.
Only Risk What You Can Lose
Only risking what you can afford to lose is an extremely important rule for all traders, but not for the reason you might think.
The reason you do not want to risk capital that you truly cannot afford to do without is that it will affect your ability to trade logically and dispassionately. If you are risking capital that is essential to your current lifestyle, then you will not be able to make the kind of calculating decisions that successful trading depends on.
Do not shoot yourself in the foot before you even start by risking money that you can’t afford to lose.
Use a Stop Loss Every Time
The market is full of sudden and unexpected events, and even the smartest trade can suddenly reverse when the market throws you a curveball that you had no way of preparing for.
That is why successful traders always use a stop loss order without exception. Stop loss orders ensure that every trade has a fixed exit that will trigger automatically when a trade goes bad at a rapid pace.
Setting the perfect stop loss orders that preserve your capital without closing winning trades too early is a skill that takes time and effort to perfect, but it is one that every successful trader needs to develop early on in their trading career.
Know When to Stop
Whether you are too exuberant from a string of winning trades or you are too frustrated from a run of losses, there are a number of different situations where it is better to simply close down your trading platform and walk away from the computer than to keep trading under an emotional state.
Successful traders develop a sixth sense for when they are ‘in the zone’ and when they are not. When a trader is approaching the market calmly and dispassionately, they can consistently make the right calls to beat the market and secure a steady profit.
However, even the slightest deviation from this almost zen-like state can lead to a snowball effect of one bad decision after the other.
Never be afraid to just get up and walk away from your trading. The market will still be there later that day, or tomorrow, or next week. Successful traders know that there is only one way to be when trading, and any time you deviate from that state, it is time to take a break until you can get back in that perfect head space.