Fresh Information

July 29, 2010

Make Money Day

Five Things You Must Know to Make Money Day Trading Stocks

Make Money Day Trading Stocks

By Monti Simmons

Making money by day trading stocks is not as difficult as one may think. Yes, there is an abundance of statistics commonly thrown around essentially stating that 90% of all day traders eventually fail. But, that also means 10% of day traders are successful. It depends on whether you want to view the glass half empty or half full. In fact, the latest statistics from the Small Business Administration (SBA) show that seven out of ten new businesses only last at least two years, and about half only survive five years. However, if you accept that these statistics will be your fate, then you are probably better off never striving to accomplish anything in life that requires even a modicum of risk.

The question that really needs to be asked is: For the 10% of day traders that do succeed, what is it that makes them different? Well, since I began trading way back in 1998, I have discovered five characteristics of a successful trader. They are:

1. A Keen Understanding of How Markets Really Work. An ongoing debate is whether markets are random or predictable. The truth lies somewhere in between because there are periods of both randomness and predictability in markets. The astute trader will spend countless hours reading and researching about crowd behavior and how markets work from a technical standpoint. Your understanding of the intricacies and nuances of crowd and market behavior is important because it will enable you to develop methods that can consistently exploit those times in which markets become predictable.

2. Obsessed About Controlling Risk. The top traders are obsessed with minimizing their risk. Frankly, before focusing on how to make money, your first step must be towards learning how to avoid losing money. I firmly believe that markets are efficient enough that they extract out traders that are careless when it comes to controlling risk. Hence, over the long-term, the only traders left standing are those profitable traders who place risk control at the forefront of their trading.

3. Ability to Control One’s Emotions. Let’s face it. Just as with any job where you are the key ingredient to your success, rigid control over your emotions is a must. Trading is like playing a professional sport. You will find that the top athletes of any sport have firm control over their emotions. Emotional extremes such as euphoria during winning streaks and depression during losing streaks must be dampened. You can’t be emotionally challenged and expect to remain a consistently profitable trader over the long-run.

4. Ability to Follow a Carefully Constructed Plan. Without a well thought-out plan, you are setting yourself up for failure just as with any business endeavour. As a corollary, if you constantly abandon your plan when your trading gets difficult, then you are ensuring yourself a short-lived trading career. Many traders go haywire and start dumping their plan and making impulsive decisions after a string of consecutive losses. If you have developed a winning plan, you must be able to look beyond your current losing streak and realize that your account will eventually reach new equity highs.

5. Strong Desire to Succeed. The best traders are diligent and have an unmatched desire to succeed. It probably has never occurred to these traders that they will fail. Therefore, don’t expect to make a ton of money in your first year of trading, and then quit in frustration, if you don’t succeed. It is widely believed that the key to success in any field requires that you practice a specific task for 10,000 hours or more before you really become proficient. This is known as the 10,000 Hours Rule.

It may take a persistent and relentless effort to synthesize all of these characteristics into your trading. However, modeling your behavior to fit these five fundamental traits will help you become a better trader.

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