I've been a #daytrader for 18 years.
Here are the key lessons I've learned that made me money and kept me in the game that whole time.
A thread👇👇
Here are the key lessons I've learned that made me money and kept me in the game that whole time.
A thread👇👇
1. Control daily losses
No matter how good a strategy is, we can have impulsive days or days where our strategy doesn't suit the price action.
If I lose 3% of my account in day I'm done for the day.
That's equivalent to 3 losses risking 1% of my account per trade.
No matter how good a strategy is, we can have impulsive days or days where our strategy doesn't suit the price action.
If I lose 3% of my account in day I'm done for the day.
That's equivalent to 3 losses risking 1% of my account per trade.
2. Risk a fixed % of the account per trade
I have no idea which trades will be profitable, only that over many trades my strategies produce a profit.
Therefore, I risk the same amount on every trade.
I risk 1% of my account. When starting out, risk much less (like 0.1%).
I have no idea which trades will be profitable, only that over many trades my strategies produce a profit.
Therefore, I risk the same amount on every trade.
I risk 1% of my account. When starting out, risk much less (like 0.1%).
3. I use a stop loss on every trade
Before my trade, I set my stop loss and it goes out at the same time as my entry. ALWAYS.
If the stop loss is hit, look for the next trade. Trade didn't work. End of story. Never let a loss be more than expected because the SL wasn't placed.
Before my trade, I set my stop loss and it goes out at the same time as my entry. ALWAYS.
If the stop loss is hit, look for the next trade. Trade didn't work. End of story. Never let a loss be more than expected because the SL wasn't placed.
4. Account risk and SL determine position size
The % of the account you risk per trade tells you in $ how much you can lose on that trade.
If you know your SL, your can calculate the ideal position size so that if you lose, you lose 1% of account.
The % of the account you risk per trade tells you in $ how much you can lose on that trade.
If you know your SL, your can calculate the ideal position size so that if you lose, you lose 1% of account.
5. Only take a trade with 1.5:1 reward:risk OR GREATER
Nearly all my day trades are 2:1 or 3:1. If I can't get that (discussed next), based on typical movement, I don't trade
You already how your stop loss amount. The next part of this equation is the target.
Nearly all my day trades are 2:1 or 3:1. If I can't get that (discussed next), based on typical movement, I don't trade
You already how your stop loss amount. The next part of this equation is the target.
6. Target must be within typical movement
Prices only move so much. My target must be within typical movement. If price moved $0.50 in one direction before a big pullback, my target must be less than $0.50...maybe $0.25 to $0.40...unless I'm willing to hold through a pullback.
Prices only move so much. My target must be within typical movement. If price moved $0.50 in one direction before a big pullback, my target must be less than $0.50...maybe $0.25 to $0.40...unless I'm willing to hold through a pullback.
Reward:risk means nothing if the target is unlikely to get hit.
Take your stop loss size (difference between entry and SL) and multiply it by 2. That is how far the price must move to reach your target....
Take your stop loss size (difference between entry and SL) and multiply it by 2. That is how far the price must move to reach your target....
Look at recent price moves. Based on your entry, does the price move enough to reach that target EASILY?
Look at how long it took price to move that far in the past, and how price moved.
Are you willing to hold this trade that long, and through similar conditions?
Look at how long it took price to move that far in the past, and how price moved.
Are you willing to hold this trade that long, and through similar conditions?
7. I prefer small SLs or over large
Most traders "give their trades room". That's often a mistake, because you sacrifice your reward:risk.
If a stock only moves $0.50 in an hour (or whatever time frame), the bigger the SL, the less room left for profit....
Most traders "give their trades room". That's often a mistake, because you sacrifice your reward:risk.
If a stock only moves $0.50 in an hour (or whatever time frame), the bigger the SL, the less room left for profit....
If I use a $0.05 SL I may be able to get in and out multiple times, capturing $0.10 profits.
Since I am risking 1% of my account, my account gains 2% on every profitable trade. I can often do this 1-4 times in an hour.
Even if you only win 50% of your trades. Do the math.
Since I am risking 1% of my account, my account gains 2% on every profitable trade. I can often do this 1-4 times in an hour.
Even if you only win 50% of your trades. Do the math.
If I "give it room" and use a $0.20 SL, the price has to move $0.40, almost its entirely hourly movement, just to give me a single 2:1 trade.
Worse yet, many trader's SLs are so big the price has almost no chance of hitting their target for hours with a 2:1 or 3:1 reward:risk
Worse yet, many trader's SLs are so big the price has almost no chance of hitting their target for hours with a 2:1 or 3:1 reward:risk
8. Wishful thinking kills you
Trade what's happening now. If price is trending, don't assume it'll change until it shows evidence.
If it's choppy, don't assume it'll change until it does.
This goes back to the R:R above. Your target must be within what the market is providing.
Trade what's happening now. If price is trending, don't assume it'll change until it shows evidence.
If it's choppy, don't assume it'll change until it does.
This goes back to the R:R above. Your target must be within what the market is providing.
9. What about stop hunting?
If I get stopped out, I lost. I look for the next opportunity. If we have a favorable R:R, we still come out ahead even losing more than 50% of our trades.
...
If I get stopped out, I lost. I look for the next opportunity. If we have a favorable R:R, we still come out ahead even losing more than 50% of our trades.
...
If you're losing all the time, you can't blame stop hunters. It's your strategy that needs work. If your stop gets triggered and then the price goes in your direction, you're in too early. Wait for the stop out move and then get in. And you will still lose sometimes.
10. Commentate while you trade
We are highly distractable. To stay focused continually repeat what trade setup you're waiting for and what price has to do to create that opportunity.
If price isn't forming your setup, tell yourself that and remind yourself to wait.
We are highly distractable. To stay focused continually repeat what trade setup you're waiting for and what price has to do to create that opportunity.
If price isn't forming your setup, tell yourself that and remind yourself to wait.
This may sound silly, talking to yourself, but if you don't consciously focus on what you need to, your mind will find something else to think about, or impulses will take over, and you'll be missing trades or taking random trades before you know it.
11. A mentality of "only the best" is better than "I want to trade"
People who fail sit down to be active. They WANT to trade. They don't understand that the market provides our opportunities. They want to trade, so they take trades when condtions or trade setups aren't good...
People who fail sit down to be active. They WANT to trade. They don't understand that the market provides our opportunities. They want to trade, so they take trades when condtions or trade setups aren't good...
I sit down and tell myself (continually while trading) I won't trade unless I see something great.
If you sacrifice quality, there are infinite low-quality trades you could take. Most will lose.
One quality trade a day is better than 5 low quality ones.
If you sacrifice quality, there are infinite low-quality trades you could take. Most will lose.
One quality trade a day is better than 5 low quality ones.
1 or a few quality trades assures profit over the course of the month with a good R:R & even a 40% win rate.
Lots of low quality trades means the death of your account. Win rate will be too low.
Lots of low quality trades means the death of your account. Win rate will be too low.
12. Review and mentally prep
Each week review trades. Note common mistakes. Pick the most costly common mistake and brainstorm how to improve it.
The quickest way to improve is by reducing mistakes. That's money your strategy is giving you that you are throwing away.
Each week review trades. Note common mistakes. Pick the most costly common mistake and brainstorm how to improve it.
The quickest way to improve is by reducing mistakes. That's money your strategy is giving you that you are throwing away.
This is every week. It never ends. It is part of trading.
I also work on my mental game every week. I write down things I need to remember for next week, I write or think about what is helping or hurting my trading. I strategize what to do with that information.
I also work on my mental game every week. I write down things I need to remember for next week, I write or think about what is helping or hurting my trading. I strategize what to do with that information.
13. Enjoy the journey
I love my life as a trader. I have free time and money to do other things I enjoy. But I also enjoy my time trading. Whether I win or lose a trade, or a day, I have feedback I can use to improve.
I love my life as a trader. I have free time and money to do other things I enjoy. But I also enjoy my time trading. Whether I win or lose a trade, or a day, I have feedback I can use to improve.
My Stock day trading methods are covered, indepth, here: tradethatswing.com/product/price-…
My Forex day trading methods are covered, indepth, here: tradethatswing.com/product/the-eu…
My Forex day trading methods are covered, indepth, here: tradethatswing.com/product/the-eu…
I hope you found some of this helpful. If you have questions about a particular topic, please ask, as I probably have an indepth article on the topic I can share with you.
Follow @corymitc for more.
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Follow @corymitc for more.
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More info on controlling daily losses: tradethatswing.com/setting-a-dail…
More info on why and how I risk 1% per trade: tradethatswing.com/the-1-risk-rul…
More info on position sizing
Stocks: tradethatswing.com/how-much-stock…
Forex: tradethatswing.com/three-effectiv…
Stocks: tradethatswing.com/how-much-stock…
Forex: tradethatswing.com/three-effectiv…
For more on this topic of measuring how far price moves, see: tradethatswing.com/price-action-d…
For more info on controlling your SL size so you can capture more great R:R trades, see: tradethatswing.com/secret-to-maki…
For more on "commentating" and what it is, see: tradethatswing.com/drastically-im…
This is where I try to get my mentality to before and during my trading time. 
Here are my favorite exercises for mental work (improving discipline, patience, etc).
Parts Negotiation: tradethatswing.com/why-we-mess-up…
Identity Work: tradethatswing.com/tactics-for-im…
Parts Negotiation: tradethatswing.com/why-we-mess-up…
Identity Work: tradethatswing.com/tactics-for-im…
More info on my trading journey thus far, how I started out in 2005, and how I switched for practice to live trading.
tradethatswing.com/when-to-switch…
tradethatswing.com/when-to-switch…
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