I consistently get 5-10 emails per week from people saying 'I am lost in my trading, can you help?'. Mostly these are from prospective customers but about 30% are from existing customers. The mistakes they are making, and the comments I get are so similar, that I thought I'd try to write a blog post to cover most of the issues. In Summary, these are:
- I tried everything, but nothing worked
- I just don't see it
- I do well for a while and then just blow up
- I can't keep control of my mind when trading, I can't stick to my plan
There's a twofold problem here we have to address:
- Does the person actually know how to daytrade?
- If so, then "the mind" might come into it - but that's a long way down the road for many.
Add to that the reputation I seem to have gathered is one of "all charts are bad" and people are shy to tell me they use charts at all. This is not the case, but we'll come back to that shortly.
There's more than you can shake a stick at, but in the short term, you can make almost any technique work simply by having a huge stop and a tiny target. OR doubling down when a trade goes against you. This seems to be prevalent. To those doing either and then blowing up - the reality is, if you risk 10 to win 1, you'll win 9 out of 10 trades (OK, the spread will impact this, but close enough), and you will feel like trading King. You will then blow up your account. I see the "double downers" on SIM lasting much longer, after all - SIM accounts are infinite, but you'll eventually get to a place where the positive balance turns negative.
Now - do professional traders add to losers - ABSOLUTELY YES. Do they do it on every losing trade - ABSOLUTELY NOT - they do it when their premise is proved wrong. The problem with the at-home trader is that they don't have a valid premise for their trades, so they double down everything.
You need to know WHY you are getting in and not playing some sort of trading Space Invaders game. You'll lose your 3 lives doing that. You have to look past the winnings if they are a result of doubling down, holding on forever, or crazy risk: reward skews that all guarantee short-term runs but long-term disaster.
You have to learn how to trade and despite those winnings, you didn't yet. Ouch!
Not only do you have to trade a valid set of techniques - you have to go through a period of sucking at them first. If a prop trader told you his method tomorrow, you would fail at it because this is a skill. So hurdle #1 is actually finding good intel, which is out there, it's at Jigsaw, it's at Axia, it's at No BS Day Trading - I am sure there are others too.
So you have to find something, stick with it, and diligently track your progress. Nobody wants to do that, they would prefer to reset their SIM account after a bad day than scrutinize the day. If you cannot scrutinize the day to find where you are going wrong, then you won't succeed unless you are some sort of genius outlier that doesn't need to follow the path professional traders do.
And yes, this part is no fun, certainly not as much fun as playing buy and sell click games to avoid your spouse at night.
Trading isn't a hobby and most people think their problem is a mental one, but it's a different mental issue than they think. The mental issue is a bit like getting off the sofa, and go to the gym. Once you are at the gym, it's ok - but getting off that sofa is the hardest lift of the day. This is how it is with the "non-fun" parts of trading, like journaling your trades and going over each trade at the end of the day. You won't build your trading muscles this way.
So you can't stick to your plan or don't have the feedback loop in place to know where you are going wrong? Most don't do the reviews and so don't know if their plan is valid, so of course, they don't stick to it. You have to know for every trade:
- Did I follow my plan?
- Did the market simply not behave as expected?
- Is the market behaving as expected enough for me to profit, but I'm just capturing too small an amount of it?
How long would it take you to validate a technique if you had a more disciplined approach? When people think of a disciplined approach, they tend to think about following a plan, not validating the plan, and assessing their own performance and weaknesses.
So, how to day trade?
Here's one set of techniques you can use. It's not the only set, it's just something you could start with. Something that has you selling markets that are going down and buying markets that are going up.
It comes down to dead periods, active periods, and news-driven periods. That is simplified, but most are thinking in terms of patterns and indicators, which is where I get my "anti charts reputation" from.
If you want something spicier, you could look at volume spikes:
These videos explain the WHY of the entry and how you know you are right/wrong. They are effective but won't be effective for anyone tomorrow unless they are a genius, so they might go into that "Tried everything but nothing worked" basket.
The nothing worked is for one of 2 reasons - it's a useless technique boosted temporarily by poor risk management, or you aren't diligently trying to implement it and improve over time. That's all it needs - repetition, review, introspection. Then you are learning how to day trade - an iterative process.
Anything less is all pain and no gain!
I hope this helps. It'll sure help me in answering emails!