Day Trading Advice

Following is some day trading advice that I've put together to supplement what I wrote on the trading tips page.

Day trading can be a very profitable business, but as in any business, there are practices, bad habits and pitfalls that you should try to avoid. Before putting your hard earned money on the line, you've got to educate yourself and get a full understanding of what potential mistakes can be made in the markets.

There's no sense in making the same mistakes that other more experienced people can help you avoid in advance. Honestly, there's some trading mistakes that no matter how many times I repeat myself on this website on a particular topic, say for instance trading money management, some of you are going to go open an account as soon as you have enough money, completely ignore the important day trading advice on position sizing, and very quickly blow up your account.

That's just being human. Everyone wants to do things in their own individual way.

That's why I could care less about displaying any strategies on this website. Everyone is going to read the strategy, and if they decide to use them, they're going apply them in their own unique way. Besides, there's thousands of different stocks to apply the strategies on, using different exit methods.

So take this day trading advice .... don't be so stingy .... pay it forward and share .... there is nothing that you know, that isn't already known by thousands of other traders before you. Be helpful to others and good will come back to you.

Here's a few rules that I hope will help you:

  • Don't scale out with different exits. Remember the old rule "Cut your losses short and let your winners run."? What happens when you buy 1000 shares of XYZ at a certain price, place a stop, and then use profit targets at various exit levels? For instance, sell 400 shares at level A, sell 300 shares at level B, and sell 300 shares at level C. Or maybe sell some portion at breakeven. What you're doing is setting yourself up for large losses and tiny profits. Many traders mistakenly believe, using this exit method will almost guarantee a profit. It does not. It guarantees that you will never produce the huge winners that you need to produce a decent trading expectancy and guarantees that you will always hold your maximum position when taking your largest losses.
  • Don't be fooled by small number bias. How many times have you looked at price charts and think you've seen some kind of pattern that should lead to profits if traded? If you're looking at too small of a sample size to be statistically significant, then you may be setting yourself up to commit a large error. Backtesting, whether manual or automatic, must be done with a large enough sample size to be effective. Just be aware that your brain is constantly seeking patterns where none may exist. You have a lizard brain....you didn't know that? Look up that book on Amazon.

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  • Fools apply Martingale position sizing. You're going through an extended drawdown. You've had five losses in a row, then a couple winners and then another three losses. It happens to every trader. Every system experiences drawdowns. But what does the amateur trader do, that the professional trader doesn't? He gets frustrated, wants to get his equity back, and unknowingly applies a Martingale approach to position sizing, and starts trading with larger size on what is now a smaller account balance. This is the road to disaster. Important day trading advice here.....always apply the opposite -- an anti-Martingale approach to stock market trading. If your account balance goes down, you MUST trade smaller positions.