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Tuesday, 12 December 2017

Treating Day Trading as a Business

     One of the many things that attracts people to day trading is that you are your own boss and get to work from home. However, if you are a lazy person with no discipline do you think you are going to be a good fit to be your own boss? If you want to have any success with day trading you must treat it as a business and I will outline some key components in this post.

Lead up Moments
     I would wake up late, usually 6:00 pacific time, thus giving myself 30 minutes until the market opened. I would get out of my bed and go straight to my computer. I did not have much for breakfast, maybe a granola bar and some fruit. I then rushed to do my scans and had very poor preparation, often relying on others to post their watch list. Simply put, I did not take it serious enough. I came to the point where I did not even care if I lost money and this is such a dangerous state of mind. After a couple blowups and being honest with myself, I recognized that in order for me to have any success with trading I needed to make some serious changes and I needed to start within myself. 

Treat Day Trading as a Business 

Goals and Vision  
     First and foremost, just like any business, you need to set goals for yourself and have a vision. What is it that you want from day trading, set clear expectations and goals for yourself that are specific, measurable, attainable, realistic and timely (SMART). Did you decide to start day trading for an extra source of income? To become a millionaire? To transition to a different career? To find a new passion? This needs to be identified. Your goals will be different depending on why you started to day trade in the first place and just remember to be realistic with yourself. Far too often people start day trading to try and make a quick buck and they have no vision and long-term goals, which is why most will give up within their first few years. Most businesses struggle to make a profit in their first few years, it takes time, and this can also be said about day trading as it is a business. 

     Your goals should be written down and be somewhere visible. Simply having a goal in mind is not enough and remember to use the SMART acronym. A Short-term goal could be “I want to be consistently profitable with 1 setup/pattern with a 3:1 risk/reward or greater in 3 months time.” A long-term goal could be “I want to turn my $3000 account into $6000 in 1 year.” Although I am not a huge advocate of setting dollar goals, I do believe having a long-term goal in mind is okay as long as it is realistic.  

     I am sure most of you recognized one of my issues; I was waking up way too late and was poorly prepared. I now wake up much earlier to give myself plenty of time to get ready. I recommend eating a good meal that will keep you energized and grabbing a coffee to help keep you laser focused. Giving yourself an adequate amount of time to prepare is so crucial. If you wake up late and are having to rush to your computer this will translate into frantic trading. If you do not already have entries/exits in mind prior to the open from drawing key support/resistance lines and looking at key areas of the chart you will likely just randomly enter with no idea where the stock is heading. Rather, when you wake up with enough time to prepare you can calmly go about your morning routine and this will translate into calm trading, almost robotic like. This is the key here, develop a morning routine that becomes robotic like that helps you prepare for the trading day giving yourself an edge over the latecomers. Also, take a look at your trading environment. Does it have calmness to it? Or do you have papers all over the place and is in an open area where you can hear your screaming kids. I highly recommend having your trading office in a relaxing environment that creates a calming energy. E.g. do not try and trade in a loud environment full of distractions, trading is stressful enough as it is.

Have a Trading Partner 
     This is all about collaboration and helps keep you accountable. This does not necessarily need to be someone you are trading live with everyday, but it should be someone who will help keep you accountable and someone you can review your trades with. A lot of people day trade with tunnel vision, meaning they only see/hope for one scenario and that is all. It may be as simple as having a trading partner to tell you to zoom out for you to realize what the fuck you are doing. Not many people go into business all by themselves, so why should day trading be any different. Share your goals with this person, share your rules, and talk with them during trading hours to discuss potential trades.

Spend Money to Make Money
     I already went over this in my last blog post so I will keep this short. If a new restaurant opened would you go to it if they were too cheap to turn on the heat in the winter or used paper plates because they wanted to save money? Probably not. You need to be well equipped if you want your business to be successful. E.g. decent computer with two or more screens, decent broker and not being cheap with borrow fees, getting a scanner or joining a trading community, and buying educational products. This is your tuition; do not expect to make any money if you are being cheap.  

You may be saying to yourself, I already do all these things, why am I not profitable yet. It takes time, keep working at it. Very few businesses see immediate success and the ones that do are outliers. 

If you want more on this topic of treating day trading as a business you can read this blog post called 3 Things Every Serious Day Trader Should do in the Morning from Nathan Michaud of Investors Underground:

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