Day Trading Basics: Strategies for Success from Top Traders

Day trading is the buying and selling of currencies, stocks, and commodities, all in a day’s work. Day traders do not hold positions overnight. They aim to close out any transactions before the day is over. Day trading is not for everyone; it’s a fast-moving world of constant analysis and quick decision-making.

Successful day traders have mastered a series of skills and strategies that lead to profitability.

Developing a Profitable Trading System

The following are a few basic strategies for success in day trading:

Hollywood has done an excellent job of hyping up the day trader’s world. It appears that he makes impulsive decisions, constantly shouts, and is always out of his chair. The reality is that in the electronic age of day trading, successful retail traders are often locked up in their quiet offices, sitting in front of numerous computer monitors staring at different charts and market indicators. These charts and numbers are all part of a well-tested system.

The successful trader does not make impulsive decisions. He relies on a trading system that has proven to be successful across several years. He is confident about his system and sticks to it, only tweaking it based on solid knowledge that the market has shifted. This knowledge is gained across years of studying the markets.

Day Trading: Money Management Techniques

Another typical image in connection with the trading world is that of “betting the farm.” A trader bets all and wins big. Or, he risks all and loses all. Successful day traders can stay in the market across years because they practice solid money management strategies.

To the newbie trader, this is a bit of a challenge. After all, he is attracted to trading because of the prospect of making significant gains. The reality is that while those gains are possible with a solid system and the right expertise, he still needs a money management strategy that will sustain him over the long haul.

As mentioned in the Market Wizards, a book of interviews with top traders, rigid risk control was a crucial element in all the traders interviewed. Successful traders decide before entering the trade exactly how much they will risk: 5%, 3%, 1%, whatever the amount, it is predetermined. A good trader honours this risk level each time. It is critical to long-term success in trading.

How to Day Trade: With a Great Deal of Discipline

Jack Schwager remarks in Market Wizards that “discipline” was the most frequently used word in his interviews with the top traders. Over and over again, they touched on the importance of waiting patiently for indicators to line up and for the right trading opportunity to present itself. This is an element of trading that new traders cannot ignore. When it comes to money, greed and fear have the potential to take over. The ability to be disciplined and stick to the trading system has a lot to do with how successful a trader will ultimately become. New traders need to understand the basics of trading psychology.

In conclusion, the strategies for success for day traders are learning or developing a successful trading system, adhering to solid money management principles, and, most importantly, trading with discipline. Luckily, in the electronic age of trading, traders who are just starting can take advantage of demo accounts that allow them to trade in a near-live environment without risking any funds. While demo accounts do not challenge the psyche in the same way as when real money is on the line, these practice accounts present good opportunities for developing and mastering a trading system.

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