Day trading is dramatically different than those early days of TV commercials promoting those false hope “Red Light”/“Green Light” Trading Systems that gave so many wrong signals that people kept flushing their money down the toilet and they gave up online trading just as fast as they got into it.
Today, especially in this “one day down and the next day up” trading environment of radical volatile swings, online trading can provide you with the opportunity to make the market pay you “whatever you want”, provided you follow some simple rules. Anyone, yes even the newbie trader, can turn online trading into a stream of steady income and profits. Here are three simple principles on how you can become a successful online day trader:
1. Take Only High Probability Trade Setups
There are multiple philosophies and day trading methodologies that can be chosen. What any intraday online trader has to realize is that in order to succeed, they must find the simplicity within the complexity. You don’t need to have twenty different strategies to succeed in online trading. You need one or two strategies that work…period. The highest probability trade in online trading is buying or selling the retracements in an established trend in the up direction (called buying the pullback) or in the down direction (called selling the rallies). Simply stated, you must first have an established price trend (a series of higher highs and higher lows is an uptrend and a series of lower lows and higher lows is a downtrend). The first retracement trade setup, after a trend is established, is the highest probability trade setup that anyone can take. This is the trade that will have enough power to have the proper follow-through so you can make a profitable trade, after entering a trade setup. Set your rules up and take this one trade setup and you can be a successful online trader. Most traders are not patient with themselves and they try to take several retracement trades and they get caught on the wrong side of the trade because the market begins to go into transition.
2. Develop A Specific Money Management “Stop Movement” Trade Setup Methodology
Trade Management is one of the biggest reasons that a trader will fail when online trading. The movement of the protective stop must be incorporated into your trading methodology. Most traders get mesmerized by the fast-paced Up and Down movement of the instrument being traded and this movement causes the trader to become either fearful or greedy. Either emotion will cause the results of the trade to be less than desirable. Therefore, every online trader MUST make the movement of the protective stop, while a trade is in process, a mechanical consistent procedure and process in order to take the “personal emotions” out of being a factor in the trade. When mentoring my students, I have them determine their specific “Stop Movement” methodology. For example, you might start out with a 12 tick stop (meaning whenever a person enters in a trade, their initial stop is placed 12 ticks away from the entry point…for the ES emini contract a tick is worth $12.50 per contract)…then when the trade moves 4 ticks in your favor…you automatically move the stop to 8 ticks away from your initial entry point…then, when the market moves 8 ticks in your favor…you move the stop to ‘breakeven + 1 tick’…then, from that point on, you move the stop to trail the next swing pivot low (when the market is in an uptrend) as they are formed or the next swing pivot high (when the market is in a downtrend) as they are formed. This type of “Stop Movement” procedure takes the emotions out of trading, when followed each time an online trader enters into a trade. This procedure incorporates money management into every trade that you enter into when online trading. This is what makes it a powerful advantage for you.
3. Look Into Trading Futures Instead of Stocks or the Forex Market
In other articles, I go into depth regarding which market you might want to consider when online trading. I just want to mention one or two important things that should help you to properly investigate which market is best for you. When you online trade in the futures market, you are eligible for favorable tax treatment in America because of the 60/40 Rule regarding trading futures. When you are online trading stocks or options, you are not taxed with this favorable treatment as you are when futures trading. The Forex market is the least regulated market and that leaves you at risk to possible “shenanigans” or unfavorable customer service practices that may adversely your profitability. Do your homework and you’ll be glad you did.
Following these three ideas should definitely put you on the right track for turning your day trading experience into a profitable experience for yourself…every day!