Gordon Gecho, The Wolf of Wall St, Nick Leeson… Traders get a bad rap in the movies but while these antiheroes often come to powerful demise, they share some common traits, mainly that of being super cool. So what’s the deal in real life? Do you need to be inherently greedy, risk-taking and have a taste for the more lurid things in life? Thankfully no and day trading is a great way to build a passive income or even full-time work-from-home career.
What is Day trading and how you can build success? Day trading refers to the practice of buying and selling financial assets within a single trading day, with the goal of profiting from short-term price fluctuations. Sounds easy? Well, it can be a highly lucrative activity when approached with the right mindset, strategies, and skills. However, day trading can also be extremely risky and challenging, especially for those who lack the necessary character traits. If you are a gambler, risk taker by nature, or loose cannon, maybe it is best to look away now!
To be a successful day trader, it’s not enough to simply have knowledge of the markets or access to the latest technology. You also need to have a specific set of personal qualities that will help you navigate the ups and downs of the market, stay focused on your goals, and make informed decisions.
Successful day trading requires a consistent track record of profitable trades, as well as the ability to manage risk effectively and adapt to changing market conditions. It involves being disciplined, patient, resilient, and analytical in your thinking so let’s explore why and work out if you have what it takes.
Self-Discipline
Self-discipline is the ability to control your thoughts, emotions, and behaviours in order to achieve your goals. We all have a little but is it in the right places? Self-discipline is crucial for success. Without it, it’s easy to become distracted, make impulsive decisions, and deviate from your trading plan.
A trading plan is essential to day trading and your ability to stick to it will define your success. A trading plan is simply a set of rules and guidelines that you follow when entering and exiting trades. It will include entry and exit points, stop-loss orders, and profit targets. By following a structured trading plan, you remove emotional decision making which is key to long-term success. It’s your self-discipline that will stop you from throwing your plan out the window the moment you see a loss.
One strategy for self-discipline in day trading is to create a routine. Establish a set of habits and practices to follow consistently. Set aside a specific time each day for market analysis, and have a pre-trading checklist that you go through before placing any trades.
In addition to this try practising mindfulness. Be aware of your thoughts and emotions without judging them or getting caught up in them. If you can develop greater self-awareness and learn to recognize when you’re becoming distracted or emotional in your trading.
Finally, accountability will help your self-discipline. Partnering with a trading coach or mentor who can provide guidance and feedback on your trading performance will help you build confidence and take the guesswork out of your journey. Part of this will be keeping a trading journal of your trades, thoughts, and emotions to maintain alignment with your trading plan.
Patience
Patience is key. You cannot force the result, you are a surfer waiting for the set to come in, so sit back and get zen and be ready to ride the wave. Waiting for the right opportunities to arise, rather than rushing into trades based on impulsive decisions or emotions is the difference between success and a quick career change. Patience will allow you to avoid making costly mistakes and to take advantage of favourable market conditions.
One of the most important roles of patience in day trading is waiting for the right entry and exit. This means waiting for the market to reach your desired price point before entering or exiting a trade. If you miss the entry wait for a new one – this requires discipline and restraint, as it can be tempting to jump in or out of a trade based on fear or greed.
Furthermore, waiting for the right market conditions to align with your trading strategy. This means not forcing trades when the market is not in your favour. Give up and make a cup of tea there will be other opportunities.
So how can you develop patience as a day trader? Focus on the long-term goal rather than short-term gains or losses. This means having a clear understanding of your trading strategy and the goals you want to achieve over the course of weeks, months, or even years. By focusing on the long-term, you can avoid becoming too emotionally invested in any one trade.
Again practice mindfulness. By being aware of your thoughts, emotions, and triggers, you can recognize when you’re becoming impatient or impulsive. Again time to make a cup of tea!
Resilience
Resilience is a biggy. Can’t stand the heat? Get out of the boiler room. Trading involves the ability to bounce back from losses and setbacks and maintain a positive mindset even in difficult market conditions. All traders have losses (drawdowns) so you need to look at the bigger picture and have faith that your trading plan will come good in the long term.
Manage losses. No trader wins every trade, and losses are a natural part of the trading process. Resilient traders are able to accept losses, learn from them, and move on without becoming emotionally attached to them. This means having a risk management strategy in place, such as setting stop-loss orders and being willing to cut losses when necessary.
So how can you build resilience as a day trader? Focus on the process rather than the outcome. This means focusing on your trading strategy, your risk management plan, and your discipline and patience, rather than solely on the profit or loss of individual trades. By focusing on the process, you can maintain a sense of control and perspective, even in the face of losses.
Practice self-care. Day trading can be stressful and demanding, and it’s important to take care of yourself physically, mentally, and emotionally. This can include things like regular exercise, healthy eating habits, and stress-reducing activities like yoga.
Risk Management
Day trading is inherently risky, I mean you can lose it all right?!, The ability to manage risk effectively is crucial for success. Risk management involves identifying and assessing potential risks associated with a trade, and taking steps to minimize those risks. This includes setting stop-loss orders to limit losses, diversifying your portfolio, and using appropriate position sizing.
The number one key aspect of risk management is setting stop-loss orders. A stop-loss order is an order placed with a broker to sell a security when it reaches a certain price. This helps to limit losses by automatically closing out a position when it reaches a predetermined level. By setting stop-loss orders, you can protect your capital.
Position sizing is up there also. Position sizing refers to the size of your position in a particular trade, and it should be based on your risk tolerance and overall trading strategy. Make sure you are investing proportionately to your capital otherwise your career will be over before you know it and your savings will be gone.
Adaptability
Like any profession, martial art, sports, or day trading requires the ability to adapt. In this case, the ability to adjust quickly to changing market conditions. The market can change rapidly, and successful day traders must be able to adjust their strategies accordingly and have this built into your trading plan.
Stay up-to-date on market news and events. Keeping informed about wider market developments will let you anticipate changes and adjust your trading accordingly. Build in flexibility in your plan. Use different strategies, adjust your position sizes, and change the markets or securities you trade. Make sure this is part of your plan though, not on the fly!
Build a growth mindset. A growth mindset involves a willingness to learn and a belief that you can improve your skills over time. By embracing a growth mindset, you can be open to new ideas and approaches, and continually adapt and improve your trading strategies.
Overall, day trading requires a combination of technical knowledge, market experience, and personal character traits, all of which can be built. While technical knowledge and market experience are important, the role of personal character traits cannot be overstated. The most successful day traders possess self-discipline, patience, resilience, analytical thinking, risk management, and adaptability.
To become a successful day trader, it is important to develop these traits and continuously work on improving them. This can involve practising mindfulness techniques, learning from mistakes, seeking out mentorship or coaching, and maintaining a growth mindset.
Remember that success in day trading is a journey, not a destination. It takes time, practice, and perseverance to develop the skills and traits necessary for success. With dedication and hard work, however, anyone can become a successful day trader.
As a great man once said, “Money never sleeps”.
