An Unspoken Rational Approach - Day Trading Psychology
If you put on a trade and your heart starts pounding, you are *not* ready to trade yet...Some people who aren't ready to trade have other problems as well: Pulling the trigger to get in. Staying with one trading strategy long enough to judge it. Letting good trades go bad. Day trading psychology plays a role in these issues, and books have been written to help traders deal with these problems, but most of them do not offer a practical solution.
Day traders can be grouped into two broad categories as scalpers and momentum traders. Scalpers trade in large quantities completing each trade within seconds or minutes. Most scalpers are usually large financial firms or investors like institutional traders. Momentum traders are usually individual traders who trade according to the stock market trends. The trading volume of momentum traders usually depends on the market condition. Some other popular trading strategies include range trading, news playing and rebate trading.
Day trading can be considered as an offspring of high speed electronic communication networks. Most day traders today trades markets from a distant location such as their home or work area. They use trading software, the direct access trading platform, installed in their computer connected to internet to execute trades in real-time. In order to qualify for the trades, the trader must maintain a margin in the corresponding market. It is the day trading broker who maintains the margin for the trader and provides the direct access trading platforms. Although there are web-based trading platforms available, they are not suitable for day trading.
Day trading is a broad term, encompassing many trading styles. The one thing all day traders have in common is that they are out of their positions at the end of the primary trading session. No open positions are held overnight, at weekends, or even during lightly traded electronic sessions outside primary trading hours. The typical image of a day trader is of a person glued to a screen during long market hours, possibly entering several trades during the course of a day. That is true of many traders, but there are other styes. For example, my own approach is quite different.
The biggest problem in day trading is trading costs. A day trader takes many more trades than a long term trader, so obviously costs are higher. Typically trading costs are a combination of brokerage fees and trade slippage. In my experience, trading costs can get out of control if you take too many trades, so I limit myself to one trade per day.
Day traders work in short time frames, so trade profits are smaller. Where it might be reasonable for a position trader to target 100 points of profit over a period of several weeks, the day trader may realistically be limited to targets of 5 - 10 points. If trading costs for each trade are fixed at, say, 2 points, you can see that they constitute just 2% of the long term target profit, but may be 20% - 40% of the short term target profit. Unless a market has sufficient volatility for a trader to target profits significantly larger than trading costs, it is not suitable for day trading. Fortunately many such markets exist. Soybean and wheat futures are good examples. Suitable markets often have another advantage. Their periods of volatility frequently occur at specific times, typically short periods near the open and close of trading sessions. For example, I can usually enter my daily trade during the first thirty minutes of the trading session.
Day traders can be grouped into two broad categories as scalpers and momentum traders. Scalpers trade in large quantities completing each trade within seconds or minutes. Most scalpers are usually large financial firms or investors like institutional traders. Momentum traders are usually individual traders who trade according to the stock market trends. The trading volume of momentum traders usually depends on the market condition. Some other popular trading strategies include range trading, news playing and rebate trading.
Day trading can be considered as an offspring of high speed electronic communication networks. Most day traders today trades markets from a distant location such as their home or work area. They use trading software, the direct access trading platform, installed in their computer connected to internet to execute trades in real-time. In order to qualify for the trades, the trader must maintain a margin in the corresponding market. It is the day trading broker who maintains the margin for the trader and provides the direct access trading platforms. Although there are web-based trading platforms available, they are not suitable for day trading.
Day trading is a broad term, encompassing many trading styles. The one thing all day traders have in common is that they are out of their positions at the end of the primary trading session. No open positions are held overnight, at weekends, or even during lightly traded electronic sessions outside primary trading hours. The typical image of a day trader is of a person glued to a screen during long market hours, possibly entering several trades during the course of a day. That is true of many traders, but there are other styes. For example, my own approach is quite different.
The biggest problem in day trading is trading costs. A day trader takes many more trades than a long term trader, so obviously costs are higher. Typically trading costs are a combination of brokerage fees and trade slippage. In my experience, trading costs can get out of control if you take too many trades, so I limit myself to one trade per day.
Day traders work in short time frames, so trade profits are smaller. Where it might be reasonable for a position trader to target 100 points of profit over a period of several weeks, the day trader may realistically be limited to targets of 5 - 10 points. If trading costs for each trade are fixed at, say, 2 points, you can see that they constitute just 2% of the long term target profit, but may be 20% - 40% of the short term target profit. Unless a market has sufficient volatility for a trader to target profits significantly larger than trading costs, it is not suitable for day trading. Fortunately many such markets exist. Soybean and wheat futures are good examples. Suitable markets often have another advantage. Their periods of volatility frequently occur at specific times, typically short periods near the open and close of trading sessions. For example, I can usually enter my daily trade during the first thirty minutes of the trading session.
About the Author:
Frank Miller has a Debt Consolidation Blog & Finance, these are some of the articles: Irrevocable Life Insurance Trust - What Do You Know About It? You have full permission to reprint this article provided this box is kept unchanged.
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