In 2016 I had my best year ever as a day trader. I made $222,244.91. That’s a big number, but I don’t want you to get caught up on that. It could have been more, it could have been less.
But I want to tell you how I was able to do that.
Step 1: Recognize your limitations
2015 was a very up and down year for me. In analyzing my trading, I observed that my trades got less profitable as the day wore on. I was getting decision fatigue from making quick decisions all day long.
However, I saw that I was having a lot of success in the first two hours of the day. So in 2016, I committed to only trading from 9:30 to 11:30. That’s it. This allowed me to focus on those two hours, which are often the most volatile parts of the trading day anyway.
Step 2: Risk management
This is maybe the biggest thing for me—controlling my risk. The majority of day traders lose money, and I believe this is because they don’t have a strategy or framework to base their trading on. Every trader needs a plan, and my plan is built on a foundation of risk management.
I get into stocks that I have 99 percent conviction in, and I then set a tight stop. If a stock goes up $0.20 or $0.30, I’ll sell out half and adjust my stop to my break even so I’m guaranteed to have a winner. On losers I’ll get out at a slight loss.
Also, I’m always aware of my maximum loss. A trade is not a trade until you know what you’re risking.
Step 3: Know what type of stock to trade
As day traders, we love volatility. I love when stocks move 20-30 percent in a given day. Those are the stocks in my wheelhouse. My entire strategy entails finding these movers before they make their big move. I do that by observing several characteristics that all big movers make.
The first is that these stocks have low floats, or supply. Stocks with a limited supply are more volatile than stocks with a lot of supply. So I seek out these stocks.
Next, I’ll look for stocks that are moving 5 percent or more. This tells me that there’s demand from other traders out there who also want to own the stock.
Then I’ll look for news on the stock. The point of this process is to narrow down the field for me. With all the stocks out there available to trade, my process narrows down my list to 4-5 stocks to focus on on a given day.
Step 4: Keep It Simple
From there, I’ll look for an entry point. When it comes to stock charts, I rely heavily on candlestick patterns. This keeps it simple. I don’t let my charts get overwhelmed by many indicators. I look for bull flag patterns using moving averages.
I’ll look for a stock that’s made a quick move up and then take the first pullback.
Day trading is an exercise in repetition. I’ll do those same things every single day until it stops working for me—that's how I've been able to make a living as a trader. It only takes one momentary lapse in judgement to blow out an account, and I’m in this for the long game.
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