Are you interested in day trading strategies? Are you under the impression that day trading is gambling? Well, it depends on how you do it. Anyone can go to a Vegas casino and start laying down bets on games that they know nothing about. However, there are professionals who study games such as Black Jack and learn the strategies of when to keep betting and when to fold. If they follow the rules that they have developed for Black Jack, then they aren’t gambling per se; they are playing a strategy, which reduces their risk. The same goes for day trading. If you develop a day trading strategy, stick to your rules; then it isn’t gambling anymore.
When developing or researching day trading strategies, the internet has changed the game drastically. In many cases, you can learn day trading strategies from someone who has already developed their own rules and are willing to share it with you. You will see this in my other day trading strategies articles on DayTradingStrategiesHQ.com. For now, I will focus on how I developed my own day trading strategy, because no matter what you learn from someone else, you will need to keep the following ideas in mind.
1.) You must define your risk. Decide how much you are willing to risk on each and every trade. How much money are you willing to put down on an idea in the market? Generally, you shouldn’t put down more than 5% on any one trade. But what if your account isn’t large enough yet to do that? What if you only have $5,000 to start with? Then you will need to develop a day trading strategy that accounts for that. It is not unrealistic to grow a $5,000 account into a much larger account, you just need to decide how much to risk on each trade and stick to your developed rules.
2.) You must keep the idea of making money out of your head at all times. Greed and fear are the motivating factors of the market. Without them we have no market. You must focus on the processes that you have developed (your day trading strategies) and not the greed of gaining money or the fear of losing money. If you do not focus on the process, then you may ultimately be driven mad by the roller coaster effects of the market. It can at times be a truly maddening process when you focus on money.
3.) Never risk what you aren’t willing to lose. This is not to be taken lightly. If you are going to lose sleep over losing money, you shouldn’t be trading that money.
Don't trade any money you're not willing to lose.
4.) Any day trading strategies that have entry strategies and don’t have exit strategies are destined to fail. If you come across anything that doesn’t mention when exactly to get out of a trade, or you’ve developed your own strategy without an exit, you need to develop one immediately. What if your day trading strategy is wrong – when do you get out? When do you realize the trade is not going to work out? Even worse, what if the trade is working out, when do you take profits? How do you know it will keep going up?
5.) Don’t play the “hope and change game” with trading. If you find yourself sitting around hoping for a stock or commodity to change it’s trend, you should refer to numbers two, three, and four above. Hoping that something is going to reverse into the direction that you want it to is a hint that you haven’t developed your day trading strategy enough. Whenever I’m in a trade, if it starts going the other way on me, I know it’s not coming back and I have my stops in place to prove my conviction. When my stops are well defined, I am rarely faked out by a market move.
6.) Don’t play during a stock’s earnings. If you’ve ever been on the right side of an earnings play, you were probably sitting on top of the world. That only lasts until you get slammed on an earnings play. Earnings are generally a gamble and are only to be traded by the extremely knowledgeable and savvy investor. There is a heightened risk when playing earnings; if you cannot handle the risk, you shouldn’t be trading it. Most people ignore this rule entirely. I have never come across a single trader who didn’t have one of these body slamming experiences. It is emotionally draining and haunts you in your sleep. Earnings plays are for the people who can handle the risk. Remember, if it causes you to lose sleep, you shouldn’t be doing it.
7.) Don’t play important announcements (e.g., Fed days, PMI, CPI, housing starts, consumer sentiment, oil inventories). I have developed my strategies around these announcements. Waiting for the craziness to end is best. There is generally no edge by trying to trade on one of these announcements. I know people who do trade these; it is a thrill for them. However, as I stated earlier about earnings, they can handle the risk. There are plenty of strategic moves that can be made without playing these announcements.
8.) Surprise announcements are unavoidable. Being on the wrong side of a surprise announcement is sometimes just the cost of doing business. They are annoying and unfair, but if you have your exit strategy clearly defined, they shouldn’t hurt too bad. If you have stop losses in place, the damaging effects should be minimal. You cannot allow your emotions or confidence in your day trading strategy be diminished because a bank or investment house downgrades a stock, or if the Fed makes a surprise announcement, or if a credit agency issues a downgrade on a country’s debt. Mainly insiders see these things coming; odds are, you aren’t one of them.
9.) Don’t be afraid to ask for help. Trading isn’t easy. If it were, everyone would be trading their 401(k)s and retiring at 30 as multi-millionaires! Don’t be afraid to seek out a mentor or trading service that can help you; the right service can help clear the mental clutter and get you on the right path. Check out my review of TraderSmarts’ trading services here.
When starting out, these day trading strategies should be at the forefront of any system that is developed for trading. Day trading doesn’t need to be gambling. It’s only gambling when you have no rules for your strategy.
