An Unspoken Rational Approach - Day Trading Psychology

By Frank Miller


If you put on a trade and your heart starts pounding, you are *not* ready to trade yet...Some people who aren't ready to trade have other problems as well: Pulling the trigger to get in. Staying with one trading strategy long enough to judge it. Letting good trades go bad. Day trading psychology plays a role in these issues, and books have been written to help traders deal with these problems, but most of them do not offer a practical solution.

Day traders can be grouped into two broad categories as scalpers and momentum traders. Scalpers trade in large quantities completing each trade within seconds or minutes. Most scalpers are usually large financial firms or investors like institutional traders. Momentum traders are usually individual traders who trade according to the stock market trends. The trading volume of momentum traders usually depends on the market condition. Some other popular trading strategies include range trading, news playing and rebate trading.

Another reason I prefer day trading is that I can work through losing spells more quickly. All trading methods encounter drawdowns when traders have a losing spell. If a typical drawdown for your system spans a period of 10 trades, and the average duration of each trade is 2 weeks, you face drawdown periods averaging twenty weeks. But if you are a day trader completing one trade each day, your average drawdown period is just 10 trading days. If you complete more than one trade per day, the drawdown period is even shorter. It is never pleasant being in drawdown and it is easier to stick to your system if drawdowns are short. Twenty weeks, or more, in a loss situation tests the resolve of any trader.

Some "professional" traders will tell you that simulation trading is useless or even, "the worst thing you can do." But it depends on why and how you utilize simulated trading. If you choose a simulation strategy that has a defined number of setups, a fairly specific strategy for limiting losses, and you stick to that strategy like glue, never deviating from it - then simulated trading is a logical way of testing your method in real time and it will help you greatly. Day trading psychology also involves self control. Cultivating good habits such as self control, and developing confidence while using a simulation method will help you when you're ready to trade for profit.

The biggest problem in day trading is trading costs. A day trader takes many more trades than a long term trader, so obviously costs are higher. Typically trading costs are a combination of brokerage fees and trade slippage. In my experience, trading costs can get out of control if you take too many trades, so I limit myself to one trade per day.

Day trading facility is available for most stock, options and futures market, but note that most brokers offers services for limited markets/exchanges. The trader also must be keen to choose markets according to the product they are trading, their financial status, the brokerage they are affiliated to, the trading system they uses, and their geographical location.




About the Author:



0 comments:

Post a Comment

Don't use active link, spamming, phising or making chaos

Popular Posts