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How Not To Day Trade

How Not To Day Trade

There’s no point in trying to sugarcoat it, March has so far been a rough time across all of my trading accounts. As of this writing, I am coming off of my sixth consecutive red day, the total losses from which are closing in on -$45,000.

Although not my worst red streak, I’m obviously pretty frustrated by the consecutive drawdowns. And I’m not the only one, many of the traders who follow my daily recaps on the Warrior Trading Youtube account haven’t been shy about offering advice, most of which is done with good intentions.

While there are plenty of lessons to be learned in each of my prior red days over the past week, I’m not going to take this time over any individual day. I spent enough time talking about the circumstances that led to each red day and what I can do better in future trading sessions. The largest takeaway being the need to slow down and take fewer trades in periods when the market is struggling to maintain momentum.

Instead, I want to write a little how to be a successful day trader by discussing how not to day trade.

That may be a strange way of approaching the topic, I think it’s appropriate given my losses over the past week. But the real reason I want to look at day trading this way is that a lot of the comments I received suggested taking approaches that, at least for me, have not worked consistently or to the degree to which I can sustain day trading as a full-time career.

One common critique I saw quite a bit of was that the stocks I trade are too expensive and that I should prioritize real penny stocks, those trading less than a dollar per share. For context, of the two dozen or so stocks I traded over the past week, only two, Genocea Biosciences, Inc. (NASDAQ: GNCA) and Globus Maritime Limited (NASDAQ: GLBS), had shares priced below $2 and none (at the time I traded them) were below $1.

Those who are familiar with the types of stocks I look for when trading know I like stocks priced between $2 and $10 (which I still consider penny stocks) and shy away from anything trading above or—especially,—below that. While I sometimes trade higher priced equity (which has admittedly been a less profitable strategy), trading stocks below that $1 threshold has always been difficult if near impossible to do consistently since those stocks generally have extremely low share float and are highly reactive and unpredictable as a result.

Another piece of trading advice I’ve seen a lot of is to moderate my share size and scale into trades more gradually. While that is a solid risk management technique that I’ve implemented a few times when I run up against a difficult market, it’s not a silver bullet for a volatile market. Although it may mean smaller losses when a stock abruptly reverses, it also means more risk to my bottom line if I continuously chip away at my capital by entering and exiting a trade over and over again for smaller profits, it’s just not practical for me.

While I know most of these suggestions come from a good place, the main thing I’ve learned over more than a decade of day trading is that the best traders are those that remain consistent. While I often tweak my criteria for which stocks to trade or how aggressive I should be based on the market I’m in, I strive to keep my fundamental approach the same. Because I arrived at my strategy through hard facts and by studying my most successful trades and it’s ultimately that consistency that got me where I am today.

That’s not to say my strategy is infallible or that there aren’t things I can do better to be more consistently profitable. I encourage traders to experiment and find what works best for them. However, I also caution traders against dramatically switching up an otherwise successful strategy when they run up against a rough patch.

While that might be hard to do when your typical strategy has stopped working, consistency is at the core of any successful day trading strategy.


Related Articles (GLBS + GNCA)

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Posted-In: Warrior TradingEducation General

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