Day Trading Psychology - An Unspoken Rational Approach
Topics: day trading, index trading, futures trading, support and resistance trading, short term trading
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:
1. Pulling the trigger to get in
2. Staying with one trading strategy long enough to judge it
3. 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.
In order to be successful at day trading support and resistance, you must have confidence in your trading strategy. Most traders with less than 2 or 3 years of experience, and for those who are just starting to learn day trading…well, they have nothing to be confident about.
If your trading strategy isn’t making you money consistently, in “real time”, you can’t have confidence in it. But, how can you tell if your method is any good when you don’t yet have the nerve and discipline to trade it?
Day trading psychology involves building confidence, and consistent, profitable results will lead to confidence. Being a 23 year veteran trader, my day trading advice for you would be to trade your strategy in simulation mode so that you can judge it rationally.
The inexperienced trader (and even some traders with years of experience) has a difficult time thinking rationally when they are afraid of losing money, so take that fear out of the equation by utilizing simulation trading as a tool.
Some “professional” traders will tell you that simulation trading is useless or even, “the worst thing you can do.” But it depends on why and how you utilize simulated trading. If you choose a simulation strategy that has a defined number of setups, a fairly specific strategy for limiting losses, and you stick to that strategy like glue, never deviating from it - then simulated trading is a logical way of testing your method in real time and it will help you greatly.
Day trading psychology also involves self control. Cultivating good habits such as self control, and developing confidence while using a simulation method will help you when you’re ready to trade for profit.
Having confidence in a method you have traded in simulation mode is the most rational starting point for a new trader, or any struggling trader.
So begin the successful part of your trading career with a strategy that you personally have learned to trust through real-time trading (preferably simulated trading).
Not all trading strategies are alike, and this is important to understand.
1. Any strategy that loses more than 60 % of the time (such as a trend-following system) will take enormous courage to trade, no matter what you do. These strategies demand a certain type of person (rich, with ice water in their veins).
2. Thousands of strategies force you to place a fixed stop and wait to see if it gets hit. These are difficult to trade with confidence - even IF you can find one that wins more than 65 - 70% of the time and makes money in the process. That’s a big IF. You can spend a career and thousands of dollars searching for success with this kind of strategy, most unfortunately end in failure.
3. My method for support and resistance trading is rarely talked about, but aside from making money for me on a consistent basis for more than 20 years, it just happens to have a rational approach to day trading psychology built in.
Here’s what I’m talking about…The fear of trading is associated with the lack of control.
With most strategies you can control only a few aspects:
1. You can learn to control your entries through discipline and strict setups.
2.You can limit the size of each loss somewhat by using fixed hard stops.
3. You can control your overall chances of success by finding a strategy that works for you in simulated mode BEFORE you trade it with money.
4. You can control the days and times of day you trade.
5. You can control the number of contracts you trade, placing more money at risk on your highest-probability setups, and less on your lower-probability setups.
BUT…
Most traders day trading don’t know how to control the overall size of their losses. Learning how to do this is the most rational way of dealing with fear, greed, and other problems of day trading psychology, and it’s the main key to my own success as a trader.
Remember this simple rule that will build your trading confidence like nothing else:
** Exit any trade that doesn’t go your way immediately. **
Forget about the commission, forget about how many hours you waited for the setup, forget everything except this rule. I know it’s radical, but just do it.
Then YOU will be in control of the one factor that most traders don’t believe can be controlled - the downside outcome of the current trade you’re in.
The first rule is used in combination with the second rule…
** Every trade starts out as a scalp until proven otherwise. **
This means that if you get 2 or 3 ticks gain and the market pauses and moves a tick in the wrong direction, you get out immediately with 1 or 2 ticks gain…. No questions asked.
This simple rule gives you control over your gain/loss ratio, another thing that most traders believe is beyond control.
I trade around support and resistance levels because they are built in to every liquid market. They arise primarily from the day trading psychology of people who are trapped in a bad trade and want to get out at break-even as soon as possible. This feeling does not change from year to year or from one generation to the next, so day trading support and resistance can never become a strategy of the past.
Mike Reed is author of TradeStalker’s RBI Trader’s Updates. He has been trading the Market for 23 years. His support and resistance numbers have been published on the internet since 1996. Mike’s nightly support and resistance zones are specific and incredibly accurate. He offers an unlimited free trial of his nightly TradeStalker RBI Trader’s Updates. www.tradestalker.com 2005 TradeStalker.com and Mike Reed
Previous Articles Highlighter:
Top Paye Questions Answered (1)
If the new employee either does not possess or has lost the P45 from a previous employee then the employer operating the PAYE scheme must still deduct tax and national insurance from any wages payments made to that employee and also advice the Inland Revenue to establish the tax status of the employee.
How To Earn Extra Money On The Weekends (2)
Via The Internet The Internet has opened avenues for many ventures and is the world's biggest marketplace. If you know how to make use of it, the avenues available on the Internet can help you earn a decent income on the weekends or even after hours on the weekday.
Liability Car Insurance Protects You (3)
To make that payment, you could be forced to liquidate property, savings, or other assets, even including your future earnings. By purchasing liability auto insurance limits to account for both your current assets and future assets you can help protect you from this risk.
Finding Cheap Bankruptcy Lawyers For You (4)
You can also browse online to compare some services to get an idea how much it would cost you to hire a bankruptcy lawyer. Find bankruptcy lawyers online from here: www.findbankruptcylawyers.info.
Pay As You Earn Wages And Salaries Tax Scheme Explained (5)
Special conditions and circumstances for each employee is usually representing in the tax code with a letter known as a suffix to the prefix tax code number. The financial tax year in the UK is from 6 April one year to 5 April the following year with each tax year divided into 53 specific week numbers that accounts for days over at the end of the year and also into 12 monthly periods.
Baby Boomer Business Sellers - The Rush To The Exits Could Erode Company Valuations (6)
If you look at the transaction structures that are popular in the acquisition of closely held businesses, this approach makes a lot of sense. The more a business depends on the owner for its success, the greater the risk to the buyer.
Annuities: Consumer Alert: Equity Indexed Annuities (7)
As a result, EIAs are easy to sell. And with commissions as high as 10 or 12% of what you invest, insurance agents and brokers are motivated to recommend them!
Who Caused The Housing Bust (8)
But who can remember the appreciation when we had a balanced market between 2002 and 2004? Not many. To refresh your memory, median home prices rose a measly 4% between 2002 and 2004.
New Orleans Housing Market Is Set To Heat Up Soon (9)
Profit potential could be good especially if the market is anticipated to strengthen. The opportunity is soon. New Orleans needs your help to restore its beauty, and to even enhance its beauty.
Second Career: In Retirement (10)
Retirement or ending your first career doesn't have to be the end. If you get bored with sitting at home a have the urge to get out and do something, a second career is ideal and financially beneficial.
Thoroughly Investigating The Personal Loan (11)
Remember that defaults here will give you a bad credit score, making you ineligible for loans in the future. In the market for Personal Loans? Visit www.thriftyscot.com Come and Compare Personal Loans at www.loansubmit.co.uk We get you an Unsecured Personal Loan at www.thriftyscot.co.uk Get the best deals.
Clean Up Your Finances Before You Invest (12)
It is important to know what's in your credit report and clear up any negative items as soon as you possibly can. If you have $25,000 set aside to invest, but you have $25,000 worth of bad credit, your best bet is to clean up your credit before you start any type of investing.
When Car Insurance Is Your Friend (13)
Extensively study the rates that are being offered by providers of car insurance. Getting good car insurance is quite easy especially since the insurance markets started expanding. It would be a great idea to check with friends and family to find out which deals are worth looking at and which companies offer the best bargains.
Buy, Sell, Or Hold? (14)
Another group of securities that haven't been fairing well lately is the closed-end bond funds. Typically, bond funds do well when the stock market is falling and interest rates are going down.
Things To Consider On Applying For A Home Loan (15)
Having an honest and thorough discussion with a home loan agent will give you an idea of what you are in for, and enables you to realistically assess your situation and how you should deal with it.
What Is Whole Life Insurance? (16)
It should be understood that whole life insurance often requires that the policyholder pay premiums for the life of the policy. Another scenario for whole life is for the policyholder to pay u front the cost of the entire policy, or that the cost of the policy be paid within a certain amount of time, such as five years.
Creating Multiple Profits To Increase Your Net Worth (17)
Simply place links on your website that point to the wholesale websites you belong to, or even pin images of the available products to those links on your website. Those links to the products that are your extra streams of income will get much of their advertising as your business website is advertised.
Advice For People With Debt Woes (18)
As a consequence, many of us are left with multiple loans that have to be paid. IS TAKING DEBTS BAD? Being in debt is not a bad thing by itself.
Mortgage Refinancing In All Its Aspects (19)
Moving to a refinance mortgage is a good idea if the applicant is of the opinion that this is a move that will help him save a lot of money.
Property Rental Requires Research (20)
Have Property to rent? Visit www.simple2rent.co.uk Want Property to let? Visit www.simple2rent.co.uk Come visit us for the latest info and listings. We also help with Repossessed property at www.simple2rent.co.uk today.
Newer Articles Highlighter:
Using A Credit Union For Your Savings (1)
Once you find some suitable selections, you can visit their websites to see if you meet their requirements. Some religious organizations have unions set up for members of their faith.
Basic Types Of Health Insurance (2)
Topics: insurance, car, life, travel, pet, caravan, cheap insurance, UK, compare, quote, home, buildings, contents Health care insurance can be confusing even for those who have some experience with it. For those who are new to it, it can be downright unfathomable.
How To Choose A Debt Consolidation Company (3)
So be careful when you sign up. Make sure they offer you choice and flexibility, and that their staff are all qualified insolvency practitioners, not just loan salesmen. www.best-debt-consolidation.co.uk offers a wide range of services and options to those under financial stress.
Not Knowing The Rules Governing Employee Or Self Employed Status Could Cost Thousands (4)
For a small business that level of additional cost could be the difference between survival and liquidation. Terry Cartwright, accountant and CEO DIY Accounting, designs Accounting Software at www.diyaccounting.co.uk providing accounting solutions for small to medium sized business in the UK with payroll software at www.diyaccounting.co.uk for up to 20 employees
Housing Market Inventory For November (5)
The current housing market inventory across the country at the present time is challenging to say the least. The same holds to be very true across Florida generally and in the Tampa real estate market as well.
How To Buy Pre-Foreclosures (6)
There are several options that you have in terms of finding pre foreclosures. You can find pre-foreclosures that up for sale pretty much the same way that you can find homes in which the bank already has control of.
Student Loan Consolidation Info - How Do I Get My Student Loan Approved? (7)
Another thing to keep in mind is student employment. This can be a great alternative to borrowing the full amount you need. It may seem hard to imagine working while attending school, but it is just as hard or harder for some people to pay off the loan after graduation.
Mortgage Advice In A Real Time Of Need (8)
Having taken mortgage advice himself recently, he put me in touch with the right people. My main priority right now was keeping a roof over our heads but how was I going to do this with such a drastically reduced income?
Britons 'Wary' About Financial Future (9)
Abbi Rouse writes for All About Loans. Our visitors can apply online for poor credit secured loans. We also specialise in cheap loans, and the cheapest consolidation loans online.
Invest In Real Estate And Create Capital By Flipping A House For Cash (10)
All you need to know are the techniques that will get you the most money in the least amount of time. The second way you can make money by flipping a house is though "Wholesaling." Wholesaling involves finding a house for sale then flipping it to a real estate investor for a fast profit.
Older People 'Under Financial Pressure' (11)
She added that many people found the claiming process to be too complicated, although getting such money could well provide help with money management for many people. According to the Commons public accounts committee some 1.6 million of the over-60s could be missing out on about 2.1 billion pounds which is waiting to be claimed.
Avoid Foreclosure - Market Your House For Sale By Owner (12)
In order to have the best open house, be sure to have your home clean and clear of clutter. Take down the personal pictures so others can imagine themselves living in the house.
Homeowners 'Look For Financial Security' (13)
Commenting on the figures, Nici Audhlam-Gardiner, head of mortgages for Abbey, said: "For most of us our mortgage is the biggest financial commitment we make so it's understandable that we want to know just how much we're going to have to fork out each month.
It Is Getting Harder To Find Debt Solutions (14)
As a negative result, not only are they seeing their incomes decrease, many debt solution companies are concerned that good and honest advice about debt management is so scarce and hard to find for borrowers, and are pleading with the banks and credit card companies to thing again about their no prisoners attitude to accepting IVAs.
Will Bankruptcy Lead To You Losing Your Home? (15)
With Chapter 7 Bankruptcy you will be able to settle your debts fairly quickly, like 3 to 4 months. A Chapter 13 on the other hand will lay out a plan for about 3 to 5 years to give you a fresh start.
Please See ID Or Not? (16)
This way, cashiers and other people who perform your transactions will still be able to verify that the card is being used by its rightful owner.This process may take a little longer than just letting them look at your signature, but it is much safer.
How You Can Get Rid Of Your Loan Debt (17)
Organize your financial records. You need to know exactly what you have in order to organize a visible plan you can work on and see the changes as they occur.
Online Forex Trading Course: Introduction To Forex Trading (18)
For example, if your margin is $100 (1% of the entire Forex deal in this case), you could control $10,000 of currency contracts. However, margin is a double-edged sword.
How To Use Certified Diamonds To Invest Your Money Wisely? (19)
If you have a lot of money to invest, it would be a good idea for you to for the big catch. The value of rare diamonds can double in just a short period of time.
Learn About Biweekly Mortgage Payments And There Benefits (20)
If you are a consumer with a some additional salary bonuses, however, and you have great ambitions to quickly pay off their mortgage loan, there is an option that is available that will reward them for making more frequent and quicker payments.
Permalink to Day Trading Psychology - An Unspoken Rational Approach