Becoming a day trader is easy to do, but to become successful is a whole different story. It takes a lot of practice and determination to make it through the steep learning curve, but if you set yourself up with the right tools and trading education, you will put yourself in a much better position to succeed.
Most traders, roughly 90%, fail at trading. This is because they don’t give themselves enough time to learn or they don’t use the right trading tools to help them navigate the complex markets. Below I will cover the three most important steps that all traders, particularly new ones, should follow.
Step 1: Find the Best Trader Mentoring & Trading Education
One of the most overlooked aspects when starting off on your trading journey is finding a trading mentor who will guide you through the beginning and help you establish trading strategies that fit your personality and style. Most beginning traders don’t want to pay for the mentoring or don’t have the money to get a mentor, but after years of struggling to find my trading edge I can tell you that having a mentor will save you thousands of dollars in the long run and is worth every penny.
If you don’t have the funds to pay for one, then you should really consider if the methods you are using are putting you in the best position to succeed as a trader. There are plenty of free resources out there, but in reality, no number of books or amount of paper trading will make up for the knowledge you can gain from an experienced and successful trading mentor.
Step 2: Use the Right Trading Tools
Having the right tools for trading is crucial to gaining an edge against your competition and making sure that you aren’t missing your setups. You’ll need charting, scanning and trading software that is quick and reliable. For charting, I like to use eSignal, which isn’t the cheapest, but is one of the best charting software tools I have used with robust charting graphics and a ton of indicators and drawing tools.
Scanning for your trade setups and market movers is important for understanding what is going on in the markets. There are thousands of stocks and it’s near impossible to follow everything without scanning software. Trade Ideas helps eliminate the noise and find the setups I want to see in real time.
Finding the right broker for trade execution can seem like a daunting task given how many there are to choose from, but to help you narrow it down you will need one that can accommodate hotkeys for fast order entry, direct market access and one with a competitive commission schedule. A few to check out first would be Lightspeed, SpeedTrader, and Trade Station.
Step 3: Manage Your Trading Risk
As a trader, your success depends on your ability to make quick decisions in the heat of the moment, and if you don’t know how to manage your risk in trading, you will be looking for a new career very quickly. Developing a trading edge is something that takes time and a ton of practice. Anyone can place a trade to buy or sell a stock, but knowing when to do so with the probabilities on your side and with proper risk management is what separates failing beginning traders from successful and seasoned professionals.
One of the best ways to manage risk is to place stop loss orders as soon as you enter a trade that will protect you from extreme losses. This keeps you from second-guessing yourself, making an emotional decision, and letting a losing trade go against you more than it should have.
The old trading adage still rings true today: cut your losses quickly and let your winners run. Follow these steps and you will be on your way to becoming a successful trader.