Dear Mark,
I have recently been approached by Harriman House, a well known publisher, to contribute to a new book covering the 10 essential rules of investing. The book will focus on various specialised fields within this industry. My chosen subject will be ''day trading''. The book is due to be released, in early 2012 and at this stage I would like to share with you my top 10 essential rules for day trading.
SURVIVING DAY TRADING - TRADING TIP NO.11
10 insights from a professional trader on how to profit and make a living out of day trading.
1. PREPARATION IS KEY
Do all your preparation before the market opens and avoid unplanned trades. They will not lead to success in the long run. Discipline is vital in this profession. You can't control the market but you can control yourself. The worst event that can occur to a new trader is winning from an unplanned trade. The reason being that he/she will be more likely to hang onto a bad trade in the future in the hope that this trade will also turn into a winner. We all know where this leads and it's usually to an account with a balance of zero. The after effects also give way to all kinds of psychological problems such as fear and lack of confidence, so traders avoid at your peril!
2. THE GAP
Understand that trading the gap is the most reliable day trading strategy there is. This is the bread and butter trade for most professional traders.
3. YOUR MARKET HAS ITS OWN PERSONALITY
Know your market's personality and its internal dynamics. There is more to trading than just indicators
and bar charts. Each market will have unique behavioral patterns, which can be exploited over and over again.
4. TURN YOUR ATTENTION TO THE MARKET AND NOT YOU P&L ACCOUNT
When trading, focus on your chart price and not your profit and loss account. If you have done your preparation there should be no need to focus on what profit or loss has been made whilst the trade is active. Your stop is a pre-determined level of risk so let it do its job and your exit target is not based on how much profit the trade is currently earning you. Applying this concept will reduce common emotional problems such as cutting profits too early and allowing a loss to run.
5. QUALITY NOT QUANTITY
Being a day trader doesn't mean you have to place multiple trades every day. It's a common misconception that large quantities of trades have to be placed in order to succeed in day trading. Over trading is just a byproduct of greed and impatience. If there is no set up for the day, which meets your criteria, take the day off. A day trader only needs 2-3 good trades a week to make a healthy living out of this profession.
6. 1ST OF THE MONTH - NOT A DAY TO BE A BEAR
Avoid selling stock indices on the 1st of the month. These days have a bias to the upside and large funds often commit new cash monies on these days.
7. PERSERVERNACE - FORTUNES DO NOT COME TO THOSE WHO GIVE UP
If you are placing a trade from a strategic position with a tight stop accept that it may take a few attempts to successfully climb on board a winning trade. Taking a few small loses should not be an issue in day trading and in the long term strengthens your mind and protects your capital from further loses.
8. SIMPLE
Simple is better. Your core system/strategy should be as simple as possible. In my experience the more complicated a system , the less chance of success. This will allow you to apply some discretion to your trading -so you can adapt to changing market conditions.
9. NEWS
Large news events often produce the worst bull and bear traps in the market. Recognise major news releases but accept it's impossible to predict how the market will react to the news.
10. LARGE EGOS HAVE NO PLACE IN TRADING
Avoid looking for that one big move. Too many traders obsess with trying to catch that one big move and the majority fail miserably. Largely this is down to ego. In reality the markets trend only 20% of the time and for 80% of the time they are range bound. Develop strategies that can profit from these conditions. Overtime, consistent profits will stack up.
All the best,
Mark
My website is www.markaustintrading.com
Mark Austin Trading is now established as one of the UK's premium FTSE trading services and here's here's what one of our members has to say-
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Steve
