3 Strategies Successful Day Traders Use To Beat The Markets

cramer stock picks

It’s true. Most day traders lose money. This could stem from a number of reasons that include: under-capitalized, uneducated, and lack of solid strategy.

Now, this shouldn’t discourage you, but understand that if you want to become a successful day trader it won’t be easy.

The Financial Industry Regulatory Authority classifies someone as a pattern day trader if they trade four or more day trades in a 5-business day period. Also, if your day-trading activities are greater than six percent of your total trading activity for that same five-day period.

The minimum equity requirement on any day in which you trade as a pattern day trader is $25,000.

Can You Day Trade If You Have An Account Under $25K?


However, you can not execute more than 3 day trades within a 5-business day period. If you do, you’ll be flagged as a pattern day trader and receive a margin call if your account is under $25K. Depending on who your broker is, your account might also get suspended from entering new positions for 1-3 months.

If Day Trading Is So Hard Why Bother?
wsj successful day traders
Source: WSJ

A successful day trader can make more money in one day than the average American makes in a year. They can make more in a month than some people will make in their entire lives. Successful day traders make life changing money.

3 Traits OF Successful Day Traders

They Follow A Rules Based Approach

successful day traders

Successful day traders know what their strengths and weaknesses are. They keep thorough records of their trading history which enables them to clearly define their edge is coming from.

Now, if you’re new to day trading, you don’t have a track record and don’t know what trading style or strategy best suits you. When you’re in this discovery stage, make sure to trade small and not risk a lot of capital.

A successful day trader knows what patterns and catalysts to watch for. They focus on the type of trades they know they’ve had success with in the past. They avoid trades they don’t understand and target the ones that cater to their strengths.

Once they have defined where their edge comes from they focus on a trading plan.

Successful day traders have a plan when they enter a position as well as an exit strategy.

A basic plan would be to write down your thesis. That is, why you think the stock will trade higher or lower. Then you would write down your target price on where you would like to short or be long. In addition, you’ll have two exit points. The first would your area of profit taking. The second would be your stop loss.

Its a lot easier to avoid making emotional decisions when you have a trading plan. Also, writing down your plan makes it more likely that you will follow it.

Some new to day trading might jump into a stock without knowing what their edge is. Or their plan is not complete. For example, they might buy a stock because of a positive news headline, but not have an out in mind. Not knowing how much you are trying to make and willing to lose on a trade is a mistake.

They Are Disciplined

successful day traders

Successful day traders are extremely disciplined.

What does that mean?

They stick to their strengths and they follow a trading plan.

Where do some traders fail in the discipline department?

They DON’T Over-trade. Successful traders know where their edge lies in the market, and they focus on the trades that will potentially bring them back the best returns. If you know where your edge is, focus on those type of trades. Don’t just jump into trades because of fear of missing out.

They Have A Trading Plan. You Need to outline your entry point, as well as, your two outs: profit target and stop loss.

They Honor The Trading Plan. For some traders, creating a plan is not difficult, what’s hard for them is sticking to it.

When successful traders have a stop loss and a stock is approaching that level, they won’t change the plan because they are about to lose. Whereas, an inexperienced trader may change their stop loss, which could end up costing them further losses. Successful day traders understand that one of the few things they can control is their risk. The motto of live to fight another day is one that many day traders follow.

Also, when a successful day trader is in a winning position and their target is to take $1.00 per share, they won’t get excited and take profits at $.50 or $0.60.

By changing your target, you are changing the plan and the risk/reward of the trade. For example, if you were risking $0.30 and your goal was to make $0.90, and you get out at a $0.50 profit, you have changed the whole dynamics of the trading plan.

Risk/reward is a lot more important than your winning trade percentage. For example, lets say you made $1 on two different trades, and lost $0.10 on 8 different trades. You made $1.20 while having a 20% winning percentage.  This is why honoring the trading plan and paying attention to risk/reward is so important.

They Are Open Minded

Markets are constantly evolving. A pattern that you see working for a couple months can suddenly disappear.

Successful day traders are recording their trading records and use a journal to write down their thoughts on the markets and trading. Their goal is to get bigger on their best ideas, but also to expand and add new trades.

That said, they are open to sharing their ideas and communicating with other traders. Some of them even prefer to work in teams. Having someone give you unbiased feedback can be very helpful to ones trading.

Trading can be very stressful at times. Having the ability to speak with someone who also understands the experience can be soothing.

Final Thoughts

While its true that most traders end up losing money. Successful day traders can end up making life changing money. These traders are organized, disciplined, follow a plan, and focus on their strengths. These are attributes that you’ll need if your goal is to make it as a day trader.

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