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A Day Trader’s Guide to Level-Headed Trades

March 26, 2019
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5 minutes read
A Day Trader’s Guide to Level-Headed Trades

Day trading, by definition, entails making quick decisions and adjusting your positions in real time, and that’s precisely what makes it so dangerous. The high stakes positions that you’ll take should only be taken after careful consideration, and you’ll hardly have time for careful consideration in a fast-moving market.

Worse, you’ll experience lots of emotional and stressful swings as a day trader. Studies show that stress can cause us to make risky (and poor) decisions. The emotions that come with pulling off a huge trade can make us want to keep doubling down, while the frustration and fear that come with messing up and losing lots of money can cause us to want to chase our losses — that’s the basic gambling psychology that everyone has to watch out for.

All of this is almost enough to convince us that safe and successful day trading is not possible. But for those who can keep their cool, it actually is very possible to make level-headed trades. Here’s how.

Know (and test) your strategy

You don’t have time to calculate what to do in each and every isolated situation you’ll run across as a day trader, but that doesn’t mean that you can’t make an informed decision. Your best bet is to know what to do based on a larger strategy that you apply to all different situations.

Take the time to learn how financial markets work. Read up on theory and practice different strategies using stock market simulators. Follow the financial news, read day-trading blogs, and watch streams of other day traders at work. Settle on a strategy before you start risking real money yourself.

And make sure that you have only one strategy. Whether you believe in a cypher pattern strategy or an Ichimoku cloud strategy, rely on that strategy and that strategy alone. If you’re using more than one strategy, you’ll find reasons to do multiple things in the same situation — and you’ll break the tie by going with your gut. In that sense, having multiple strategies is no better than having no strategy at all.

Care for your mental health

If you’re going to stay calm and make the right decisions based on your proven strategies, then you’re going to need to have a good head on your shoulders. That means that you’ll need to care for your mental health in much the same way as you care for your physical health.

You need to stay healthy by eating well and exercise. Get good sleep, so that you’re sharp in the morning when trading starts. And don’t forget about mental healthcare options like therapy. Choosing talk therapy could be a great way to lower your stress levels and keep yourself happy and productive.

Achieve work/life balance

Day trading is a stressful job, even for those with great mental health strategies. Burnout is a real threat to day traders, and flagging energy levels and high stress levels can cost you big if you blow a trade because you’re not in the right headspace.

You need to focus on your work/life balance as a day trader. Take some days off or even go on vacation. As a day trader, you’ll usually be taking out short-term positions. So close out everything once in a while and play hooky. Try to not to worry about missed opportunities — instead, focus on the ways in which you’re making yourself more energetic, happier, and more productive. Those are things that will pay off for you professionally as well as personally down the line.