Updated: May 28, 2020
Day trading and war are very alike. They involve mind games using fear and greed; they portray aggression and retreats with profits and losses. You could see the similarities of warfare during dynasty times when battles are fought to win the war between the states. You also know that day trading is about strategic positioning, the trends and fluctuations in the markets, allowing quick profits to be made brief periods. It is not a program to result in vast fortunes through a single trade. Instead, smaller earnings on a regular basis. Experts in this field recommend a plan needed for it to be profitable.
修行之道Cultivating Mindset of a Day Trader:
易 I-Ching Approach: In this ever-changing environment, there are no right or bad market. Just a successful or wrong approach to the market.
彈Zen Attitude: Trading can be a roller coaster ride. It is essential to balance your emotions so you will not be conquered by fear and greed.
誠Humble and Honesty: Do not be ahead of yourself. Be truthful in your failures and success.
忠Be Discipline: Success does not happen overnight. Effort grows result.
學Be a Student: Learning never stops. Adapt new market conditions and reduce risk.
What are the things I need to be aware of?
Three conditions (天地人):
人 (Who: People) You are ready to trade
Know how to control your fears of losses and greed when trading. They may cloud your judgement. Losing big regularly and losing small in a regulated trading plan. The key is to keep them lower than your average wins.
You are not guaranteed in a week with only one loss. It is crucial to have a plan and a strategy. Even so, review and adjust. Come back again with a fresh pair of eyes.
My financial considerations:
Define your long-term goals and plan how to achieve it.
Never borrow to trade.
Do not use money that you cannot afford to lose.
Your definition of wealth. Money influence your emotions which affect your decision.
地 (Where: Place) You have decided which market to trade and what you want to trade
Selecting a Market:
Stock markets have good liquidity and volatility, but the initial capital is high, and the leverage may be moderate to low ratio.
Forex market is extremely liquid, and the capital requirement is lower. There is some decent volatility.
Future market can be very fluid, and the capital requirements are in between forex and stock market. There is a modest volatility. Future markets are regulated, and the spread is typically one tick. Depending on demand, there may be some differences in volume and liquidity.
Stock Options trading offers similar advantages and disadvantages to stock trading. It would help if you had a higher capital when you day trade. The leverage is higher than you are trading stocks, but much lower than future and forex. The liquidity is small compare to the other markets, and the volatility is high. Experts say that it is not suitable to day trade for a novice.
Initial capital requirement: Good to progress from small capital and then move to more substantial capital.
Leverage: This can enable us to exercise risk management in exchange for a better return quickly.
Liquidity: To avoid problems caused by market manipulation and slippage.
Volatility: Adversities comes opportunities.
天 (When: Time) Market must be ready to be traded
Selecting a Time
Trading on a larger time frame, your average profit per trade will be more significant, but you will have fewer trade opportunities.
Smaller time frames mean smaller profits, but usually lower risk.
Reading different charts do not foretell the future market behaviour or market prices. They offer a concise and accurate history of the price movements of a particular market. In that history lays a trend, and it is from this trend that you can extrapolate data on which to base your future projections of probable market behaviours and price changes.
Indicators help to determine the directions of the market to enter or exit a position.
Before deciding on a trading approach, it is wise to identify whether the market is trending or moving sideways. Use multiple trading approaches to determine the trend.
What can I do better?
Most successful traders have a trading journal to help them reflect and cultivate good habits. The note book records your trading progress and reflections every day. It is not a get rich quick solution but a journey. There will be days when you are not at your best and the market is not ready to be traded. Therefore, it is wise not to set daily goal in your trading. Your trading foundation is very important.
Recognize is not a get rich quick solution for your current situation
Define your long-term goals and plans to achieve it
Create a financial inventory
Determine your risk tolerance
Learn your market you want to trade in
Defining entry points
Defining exit points
Evaluate your strategy
Helpful Terms & Links:
a. Preferred stock
b. Common stock
a. Initial margin
b. Maintenance margin
c. Margin call
3) Fundamental analysis
4) Technical analysis
5) Technical indicators
b. Trend- following
c. Trend- fading
d. Support level
e. Resistance level