If you are just starting day trading, please focus on keeping the trading plan simple and please don’t think about each trade as the greatest potential trade of the century. You are a mouse looking for crumbs on a daily basis. What is it they say? An elephant gets mighty big eating peanuts. Swing traders are seated at the banquet table. Day traders are mice. Keep this analogy at the forefront of your trading mind.
Start slow. Prove yourself with consistency in simulated trade. Understand losses are your friend, not your enemy. Three losses in a row using a trend and momentum system suggests you need to fold your tent for the day. Either the market is choppy or your mind is choppy.
Do not focus on the money. Focus on trade execution taking the signals and your protective stop. Understand you will have protective stop hit and you will incur loss. This means you need enough trading capital to weather two consecutive losses. Figure on $500 loss for two trades depending on the instrument AND importantly depending on your personal protective stop loss. We like to keep our protective stops tight looking for trend and momentum follow through.
When you trade in simulation you need to keep a simple log of how many consecutive wins versus how many consecutive losses you incur. Do not over-complicate the record keeping or you will not stay with it. My objective here is having you see we typically do not expect three losing trades in a row. Of course I cannot guarantee this because people see the charts differently. Some folks enter too early; some enter too late chasing the trade, while others simply cannot pull the trigger. Many new traders let a winning trade turn into a loser as they stand in disbelief at the chart.
Also, most undisciplined traders will keep moving their original protective stop watching the market move against them, yet keep moving the stop. The minute the trader capitulates in disgust, price reverses going exactly where the trader thought price could run. If this is happening to you then you have not reached your maximum point of pain. Don’t worry…you will. The market will beat you into submission forcing you to revise your approach. Everyone reaches a maximum pain threshold…everyone. Through pain we learn to adapt. You are not alone in this rite of trader passage.
I remember as a small child climbing up to the high diving board at a pool and then refusing to jump. My brother finally threw me off the deck and that cured my fear. In other words…I survived and wanted to jump again. I went from tears to joy in one big jump.
Trading is a lot like this especially when trading from a very small account. The fear of loss is tremendous. What if we fail?! So how to we stop this fear? If you convince your mind that you have more winning trades than losses, you are moving in the right direction. But you must write it down. See the set-up, trade the set-up, place protective stop, wait for follow-through. Accept loss / accept wins. Always write the win/loss record before committing any real money. If you cannot produce a consistent track record in simulation, why should real trading be any different?
Very important…Remember you must believe 100% in your trading edge, otherwise you will move from trading system to trading system and instructor to instructor, masking your inner fear of losing money. You will pile indicator upon indicator on your chart. You will chase the latest and greatest system forgetting most professionals trade simple systems. Your ego is trying to protect you from failing and trying to protect your inner pride. Accept personal responsibility and settle down.
You have got to re-write your trading mind script and make peace with your ego or you will not progress. In fact, ego will cause great harm to those incapable of making an inner shift. The mental shift process takes screen time and hard work finding a system that “speaks” to you. Keeping your system simple and mechanical as if following a recipe producing more wins than losses. You have heard me say “wash, rinse, repeat.” This is all we do every single day. You can do this. You can learn to trade.
To learn more from Martin, visit HitTheMarkTrading.com to join his mailing list and receive blog updates.