This will be an extended update on my progress on tackling the learning curve of day trading. 

To sum my past few months up: By far this is the hardest thing I've tried to learn in my life. Why? Because discipline is absolutely the most crucial factor to success as a trader. Discipline = following your rules. But of course, that seems so easy. But knowing your rules and actually following them (in the moment, with significant money on the line) are two completely different things. 

Thus far, I've made a MASSIVE amount of trades. Up to 1110 now. That includes partials I believe. So I'd gather I've made approx 700+ trades so far in a couple of months.  I've seen a lot so far, made a lot of mistakes, and gathered a ton of experience through my short time in the market.  All the consistently profitable traders I know say it takes a minimum of 2-3 years to become profitable.  These are not FURUs talking, these are legit guys very successful in the markets.  Of course there are profitable traders that have taken far less time, but some are lucky, or some found a niche early on and stuck with it until the edge was no more.

Thus far, my "setups" are working. My average winning percentage is 71% which is really good.  I've starting to become profitable on most days of the week and thus grinding back my early career losses....my cost of education, let's say. Since my setups are good, my main focus lately has been the psychological aspect of trading. Actually, ALL traders should be focusing 80% of their time on pyschology vs. setups, indicators, newest bells and whistles. 

TRADING IS A SKILL OF LEARNING WHAT NOT TO TRADE.

The synopsis of my profitability:   My random big losses (about 1-2 per week) outweigh my many smaller gains.  Bar none, if I change this, I will be successful. 

In fact, I've had a number of losses that were significant...in the $1-3K range. Mostly early on. But they still occur, more frequently than they should. 

The main reason for my biggest losses are:

1) Mean reversion bias...ie. Being married to the stock.. "It HAS to go up"....no, it doesn't. "It HAS to go down"....uhhh nope. The second you start rationalizing why you are holding the stock, that's when you need to cut it. Hope is for losers. (Price) Action is for winners.  Look, we are traders, we trade the price action not the company. If the price action says sell, sell. If it says buy, buy. NOT the news, not some guru, not social medium and especially not if you are on a hot streak...the price action only.  [I am guilty of this and aim to be no longer....this one is SO tough]

2) Averaging down on a dump/loser. "It HAS to come back up, it dropped so much....especially if my average is even lower, rebound to my break even point is imminent"....yeah...not really. ...it can keep diving and diving and diving. Averaging down is an account killer. Per Paul Tudor Jones: "Losers Average Losers"  [I no longer average down on dumps, and I no longer add to losing trades, I only add when the trade starts working per my original plan (I could be negative at that time)]

3) Averaging down on a scalp.  If it doesn't work the first time, take the loss. That's it.  This is a toughy for me because my scalps are 1-3 sec in duration. So adding to a loser is fairly impulsive. Impulsivity in trading is a recipe for unprofitability. 

 

Trading Rules/Guidlines (Beginner Trader):

This will be a long list....

1) Have a max pain number. For me it's $1K on a $35K account. This is the "get the fuck out no matter what" number. You have NO idea how many times this has saved me and countless others from blowing up accounts. Yes, it hurts, but it's better than the alternative of never trading again. Oh, and if you take that max loss, no more trading for the day...you're bent and will make poor decisions.

2) Cut your trade when PRICE ACTION dictates that your trade plan is not working. Most pros don't use some arbitrary number for a stop...they know when their trade plan is not working by observing the price action, and then they cut it. That takes discipline, and the pros have that. 

3) Do not add to a trade that is going against your plan. This is different than not adding to a loser.  Let's say you short a stock with a starter position, and it goes past your entry $1-2 bucks...ouch, but if it's within your pain tolerance you keep the trade on, don't add to it until is starts coming back down to earth (ie. your trade plan is working). THEN you have a better average with a working trade. 

4) Scale in. Related to above. Always start into a trade with a 1/4 or 1/2 size position. Go to full position if the trade is working. This does not apply to scalps which are usually one position size (and one "oh shit" position size).

5) Scale out. Take partial profits. ALWAYS. I usually take 1/2 off at my first partial. The patient pros take a 1/4 off, but of course this depends on what type of trade setup it is (with momo, trend reversal, scalp on pop, etc)

5) Drop the ego. It's not about being right, or wrong, or getting even, or making your loss up on the next trade. If you think you know what the market will do, you have already lost. 

6) Know your setups. Know your rules. Study them every day before the market opens. This keeps your trade rules in your mind fresh...because you don't have them immediately accessible in your brain, you WILL not use them. This is the homework you do before the market opens. 

7) Let the trade come to you. I thought this was a BS statement at first glance. I've consistently overtraded from the start. Up until maybe a month ago, I decided to cool down and wait for the most profitable setups. This has been monumental.  Realize that one trade, JUST ONE TRADE, is all it takes to make a day. The best traders...guess what, they trade 3-4 tickers a day. That's it. 

8) Follow the momentum. Where there is momentum and big volume, there is money to be made. Do you know where money is lost??? Picking tops and picking bottoms. Why? Because that's your ego trading. Your ego wants YOU to be that guy that picks the top, or the bottom...you're smarter than everyone else in the market!!!!  Truth is, trading with the trend has much higher probability than trying to go counter trend. Trade with the momo, but don't chase. Yes, this requires good timing that's only learned through market exposure.

9) Don't trade stocks with little volume. 

10) If the trade is obvious and the price action is slow, the trade with be crowded. Meaning it will probably do the reverse of what you suspect.

11) Trading is not just about understanding price action, it's about understanding the market players. This is a little more advanced topic. Understanding who's in the stock...ie. who's making money, who's losing it will make you a much better trader. Supply and demand IS the market, so it pays to know who's on what side. That's as close as you'll get to "predicting" price movement. 

12) If you don't like studying or learning, don't bother with trading. Trading is a lifelong study. Last month's market...shit, last WEEK's market, was completely different than this week's. You always have to seek out new trading edges.

13) The market will trick you every chance it gets. Our brains are EXACTLY, PERFECTLY ill-suited to make money in the market. Why?  Because the market is made up of people with the same evolutionarily adapted brain as you. Traders, algos, MMs, hedge funds, etc,....all are out to separate you from your money, and ALL capitalize on human emotion.  NOT acting like a human being actually gives you the edge you need to be successful in the market. Flip that, rewind. NOT acting like a human being, but understanding the impact human emotion has on the market, gives you the edge you need to be successful. Psychology is #1 in the market.  Study trading psychology more than anything else. 

14) Trade stocks that have a catalyst. Why is this stock moving? If there is no catalyst, the retail investors are not in the stock.  Emotion: Fear/greed is more evident in a stock that has eyes on it. Pros make money off of emotion and that requires unsophisticated investors (volume) in the stock. 

15) Find your mentor(s). I'm a member of a chat room and it's been pivotal in my learning process. 

16) Journal/blog/talk to your cat...whatever. But you will reinforce your lessons learned if you regurgitate them ad nauseam to anyone who half cares. haha. I hope you guys care ;-)

 

That's it for now. Good luck and happy Thanksgiving.