Day Trading Lessons

This is an uncompleted work-in-progress article. I plan to add / subtract information from it as and when possible. I have given these points based on my experiences; readers may / may not agree with them. Furthermore, I encourage them to post their views over here as comments.

It is my intention to outline certain striking aspects regarding day trading in this section. It may remind me of my mistakes and it can also act as an effective guide to the novice traders who are prone to make mistakes.

A) Day Trading Is Not Meant For Everyone

Allow me to start this short discussion with this simple aspect. Many “try” day trading because they “think” they can “succeed” in this venture. They may have heard about “some day-trader” who owns a dozen of sports cars and a string of women. A fair share of the trading community comprises of such people – who aspire to lead a quality lifestyle.

The reality is far from it. You commit a certain percentage of your hard-earned cash, to play with a certain stock or index contract. You “hope” the market can move as you envisage. However, please do consider the fact that the market may start moving in the other direction too. This can result in huge losses. Sheer capital evaporation can (a) cause depression (b) make you lose faith in your system (c) make you stop day trading all together!

It is understandable that you may lose considerable amounts of money especially during the start of your day trading career. Please do not start the venture with loads of cash. Be conservative. For instance, if you plan to day trade the futures contract, begin trading the mini nifty. The losses (as well as the earnings) will be minimal. Still no one will pay you 500/- for sitting on your ass! Also, it is imperative to concentrate entirely on day trading if you wish to succeed. I know some people who have a regular day job yet they are interested in trading the markets. Unless your regular job gives you lots of time and freedom, I will not recommend day trading for such entities.

(B) Avoid Tip Based Day Trading

This is one of the most over-looked aspects of day trading. This is especially relevant for the Indian markets. A good number of the day traders try to trade off the “tips” provided by self-professed gurus or their respective brokers. Always remember “tips” = “pits”. If the tip provider has confidence in his tips, he would surely try to trade off them rather than trying to make money by “helping” others. No self-respecting day-trader should ever follow such tips.

(C) Have A Strategy and Follow That Strategy (i.e. plan the trade and trade the plan)

Plenty of people enter this arena because they see day trading as method to make money easily. They feel that they can earn something by gambling. However, a good share of the trading community consists of people who do not follow any strategy. They think it is tough to contemplate on such aspects and try to take the easy way out – gamble, until they loose their hard earned savings entirely. This is especially relevant for the Indian traders; but I cannot blame them since the Indian markets have become highly predictable these days. Yes, you may make money on certain days but on the majority of the days, you will be left scratching your head over what went wrong and where ..

Secondly, learn to stick with your day trading plan whenever required. Nothing works perfectly under all conditions. There is no need to search for that holy grail because it simply does not exist. However, there are precise strategies that could help you make money on most of the days. Just because your strategy caused you to lose money today does not necessarily mean that you should ditch it or tweak it. Concentrate on increasing your winning trades rather than the actual money made everyday. Yes, money comes; but you shouldn’t be day trading entirely for the money. Learn why the prices move around and find the relationship in between the price, the time and the volume.

(D) Keep Your Day Trading Strategy Simple

While day trading, you primarily need to know three things and those are (1) when to stay on the sidelines (2) when to enter the trade and (3) when to exit the trade. Although it may sound very simple, the reality is far from it. Whatever your approach may be, please try not to complicate it. Learn to keep day trading simple and fun filled. With the right set of strategies, day trading is one of the most proficient businesses around.

(E) Never Invent Any Day Trading Strategy

A wise trader once admitted – most traders take a good system and destroy it by trying to make it into a perfect system. This is a realistic statement. Please do not invent anything new. The chances of it working as envisaged are slim. Developing a trading system based on the historical data of one or two years is foolhardy. Forums catering to Indian traders such as / / all comprises of members who try to come up with augmented trading strategies. I always wonder why they do so. Take it from me – stick to the basis. Just repeat what other successful traders have done before you. If they could earn substantially, then you too can. This is one prime reason why I am fond of W D Gann’s trading methodologies.

(F) Never Try To Predict The Future Movements Of The Price

Quite often I come across certain elite group of traders who have this bad habit of predicting future price movements. They claim absurdity such as – If nifty spot touches 5xxx, it will fly / fall to 5xxx. Here is an interesting aspect to this entire “prediction” niche – to predict is for the fools; to react is for the kings. Only the fools will try to assume the price movements when the experts will be busy studying the price action and reacting to it. This is one reason why I do not post any “tips” in this blog. I do not want to be seen as the next intraday trading genius. The best traders always try to stay below the radar; they try to make money for themselves instead of providing “tips”. They do not have the time and patience to post on online forums catering to Indian traders – especially during the trading hours. So beware of such entities and stay away from them!

to be continued ..

4 Responses to Day Trading Lessons

  1. I appreciate your post.

  2. Thanks so much for this! I haven’t been this moved by a blog for a long time! You’ve got it, whatever that means in blogging. Anyway, You are definitely someone that has something to say that people need to hear. Keep up the good work. Keep on inspiring the people!

  3. Darryl Skyes says:

    So many good ideas here.When trading for a living, it is important to understand that you call all of the shots.

  4. Deepak says:

    Article was very informative. Not to many people in your position are so gracious. Your article was very poignant and understandable. It helped me to understand very clearly. Thank you for your help.

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