Screenshot_8.png

AN INSIGHT
TO DAY TRADING

HOW TO BECOME A CONSISTENTLY PROFITABLE DAY TRADER


The entry barriers for day traders are lower today than it has ever been. Executing a profitable trade only requires a computer and a mouse, however, executing profitable trades consistently requires a functioning trading approach and the right mental skill set. If trading is handled like gambling, the casino will always win in the end. If trading is handled like a serious business, chances of consistent profitability increases significantly.


Therefore, trading must be treated like a business – including all its ways to measure, control and drive to become a profitable trader.


PERFORM A SWOT ANALYSIS

A SWOT analysis helps a business to identify its current strengths and opportunities as well as its weaknesses and threats and can be likewise applied in day trading.


Strength

What strengths are already present? Knowledge about economics in general or first experience in day trading could be bullets points to mention when thinking about trading related knowledge. Covering psychological aspects, the ability to reflect on the own behaviour, patience and analytical thinking could be relevant bullet points here. Moreover, environment related aspects like healthy relationships or a whole lot of free time can be part of the strengths.


Weaknesses

What weaknesses can be identified? Aspects that contrast strength, can be noted under weaknesses. A missing profitable day trading approach, a lack of patience or trading discipline and difficulties in keeping an organised workspace could be mentioned in this segment.

Opportunities

What opportunities do the actual circumstances provide? The markets are global and there are various time zones covering sessions with different characteristics. The EU and US session are the most popular ones here. Further opportunities can be found in the numerous markets. They all have different characteristics and provide individual opportunities depending on the trader’s personal preferences and trading style. Moreover, monetary conditions play a crucial role in day trading. Funded account providers offer comprehensive opportunities to receive liquidity for day trading.


Threats

What threats might be waiting? Financial or social pressure are threats that are often neglected. Also, jurisdictions have different laws regarding instruments used in day trading that might also change over time and need to be considered when evaluating the situation.



A SWOT analysis in day trading is not only useful in the very beginning but can be performed regularly when a trader has made progress and the earlier parameters have changed.


DOWNLOAD FREE TEMPLATE

SWOT_Analysis
.pdf
Download PDF • 204KB

CREATE A PLAN

In a business endeavour a business plan is created to have all relevant elements covered while providing a comprehensive overview of the given situation and way to reach potential future goals.


In day trading, that business plan can be adjusted that it fits the actual circumstances. It might include a timeline for the learning process, the expenses for the trading equipment and platform, activities around the trading session but essentially also the elements of the actual trading activity. This implements a first trading strategy including execution and risk management rules and clearly defined setups. All trading elements must be measurable to collect and analyse them aiming to develop a functioning day trading approach. Holistic learning material in that regard as well as individual assistance is also provided in the UC Trading futures day trading course ensuring the best possible development process.


COLLECT DATA

A company’s controlling department tracks all financial data of the entity to measure performance and detect areas for improvement. In day trading, the trader itself is the controlling department and needs to collect the data in a similar way. Excel provides comprehensive opportunities to create an individualised review sheet meeting the trader’s specific needs. Next to obvious elements like the P&L, market and setup also KPI’s can be developed such as the profit factor, largest three losses, average trade result or a discipline factor.


DOWNLOAD FREE EXCEL TEMPLATE

Daily Review Sheet v1.21
.xlsx
Download XLSX • 70KB

Those data enable detailed trade reviews and visualise the actual performance. Only then a trader can make rational decisions based on the collected information. The gathered data illustrate a detailed picture of the own performance and help identifying reasons behind the positive and negative performances. They must be reviewed regularly in order to identify strength and weaknesses aiming to eliminate the weaknesses and focus on the strength – do less of what does not work and more of what does work. With those data and trade reviews, a trader develops an own strategy and trading style that suits the individual personality and preferences.


MASTER THE HURDLES

A business never has a linear moving profit curve, there are months with lower profits or even losses and there are other months with phenomenal results. Nevertheless, a company keeps running its business aiming to constantly improve their profitability hand in hand with the current economic conditions.


Similarly, a profitable day trader follows through the developed trading plan and constantly improves the own capabilities – that is not only meant with regards to the actual trading but also with regards to the psychological skills needed to become consistently profitable. Resilience, patience and constant development in all areas are key in this field of work.


RESEARCH AND DEVELOPMENT

A successful business is constantly researching and adapting to the given market conditions and changing consumer demands. Likewise, a trader must be flexible and needs to adapt to changing market conditions as well. Markets never remain the same and change with the underlying economic conditions.


Trade reviews are crucial to identify weak points and, continuously, develop the existing approach. That approach is accompanied by supplementary psychology related learning to get a better understanding how the human brain functions while receiving a more comprehensive understanding of how to deal with demanding situations and why habits play such an important role in day trading.


ONE GOOD TRADE

Having developed a corporate-like management setup including an actual analysis of the business environment, a trading plan as well as data tracking and evaluation tools the individual approach develops continuously and will, sooner or later, reveal what really works for the individual trader.


Once the parameters for the perfect trade, technically and mentally, have been worked out over a couple of weeks, it is clear what to look for in order to enter a trade with a high success probability. Those scenarios may not happen that often but surely there are opportunities each day – focus on those specific scenarios.


Performers with consistent results have understood that being in the present moment and doing one good thing at a time, ultimately, leads to long-term success. For a salesman that may be the moment of selling, for a football player it may be the moment of shooting a goal, for a doctor it may the moment in a surgery but what they have in common is focusing on the moment neglecting what was before or could be in the future – the now is what counts.


The same approach can be transferred to day trading. Consistently profitable traders have understood that one good trade at a time is the main factor leading to success. They do not get influenced by the last trade, whether it was positive or negative. Often, experience of past events or expectations of futures events result in performance anxiety which does not help in delivering peak performance. Professionals simply stay in the current moment and rationally execute their plan. In the state of being fully present without any mental noise peak performance can be delivered.


Nevertheless, past performance cannot be ignored and is crucial to review but that is part for the trade reviews and not during the actual trading process – trading is pure execution.


CONCLUSION

Finally, it is recommended to treat trading like a serious business. Opportunities but also threats need to be evaluated in order to have a balanced and comprehensive overview of the positive and potentially negative sides. Strengths and weaknesses are key to identify what skills or conditions are present and what needs to be eliminated or further improved.


In that business the trader takes on the role of a controller, execution organ, head of the department as well as a reflective mentor. It requires a broad skill set, the willingness to continuously work on the current state as well as the ability to stay in the present moment when executing trades to develop a functioning business model and, ultimately, become a consistently profitable trader.