10 Tips To Make You A Better Day Trader/Swing Trader
Whether you prefer day trading- the act of buying and selling stocks in less than one day, or swing trading- the act of holding stocks for a couple of days or even a few weeks, there are many things to consider in order to be successful.
Some make the mistake of thinking of day trading as gambling or a way to “get rich quick”; this is the perfect way to set yourself up for an uphill battle.
Becoming a successful day trader or swing trader takes a lot of time, practice, patience and learning. Short term trading can be a very risky business if you do not have the proper knowledge and system set in place.
Here, we will look at 10 Tips to help you become a more successful trader.
10 Tips Every Trader Should Consider…
Always have YOUR plan.
Make sure to always have a plan before you enter a trade. The first step in making a plan is to identify your reasoning for taking a trade in a particular stock.
Whether it be chart patterns, fundamentals, upcoming catalysts, or a current market theme or trend, be sure to do your research. The next step is to make sure to have a target buy zone, profit zone, and stop loss price (where you will exit if the price falls).
From here, execute your plan and don’t let emotions guide your trading. Is is also important to analyze your risk/reward as part of your planning (see tip #4).
Do not blindly follow.
Having mentors is an important part of learning the stock market. Save yourself some time, stress and money by learning from the mistakes of those before you. However, do not blindly follow….. Make your own set of rules, have your stops and make sure to do your due diligence before attempting a trade…..
Look for volume expansion.
Volume expansion is a major indicator for swing traders and especially day traders. Volume expansion can be a major tell for an impending breakout in a stock and helps chart patterns be more reliable. Pay attention to the rise in volume……
We take risk management very serious and you should too.
Always make sure to know what your risk to reward is when taking a trade. As a rule, we like our risk/reward to be 2:1 risk/reward. This means the reward is twice as much as the risk.
So if you bought a stock at $10.00 with a stop price of $9.50 and a profit target of $11.00, this offers you a 2:1 risk/reward. The reward is $1.00 if your profit target is hit and the stop price represents a $.50 risk.
It is always smart to analyze risk/reward prior to entering a trade and search for risk/reward that gives you an edge.
Never be scared to take profits.
There is an old saying… “No one ever went broke from taking profits”, and the main takeaway in our opinion is to never look back when taking profits. One of the easiest mistakes to make is to get emotionally attached to a trade and think that it is going to be the next stock to double or triple…
And as that does happen occasionally, it is very hard to predict and capture those type of gains and even when you do, it promotes bad habits going forward and usually ends badly.
So, what we like to do is to set reasonable profit target zones and sell all or half of our position if the stock reaches our target zone. If we like the chart pattern, price action, etc. we may decide to keep half for a possible move higher.
Always have a stop loss.
This has been mentioned in multiple rules already so take the hint. It is important.. Always have a stop price in mind and know your risk tolerance.
Do not make the mistake of watching your stock plummet in hopes(and fingers crossed) it will bounce back. One of the most important rules to learn in stock trading is to preserve your gains. Always have a stop loss plan so that you never have to worry about losing your head.
Do not chase stocks.
Chasing stocks can get you in trouble pretty quickly. It is easy to watch a stock to make gains for minutes or days on in and then decide to jump in at what ends up being right near highs.
If a stock is already up 100% or 200%, don’t just chase it without reason hoping that it continues to go up and up. The only reason you should be trading these types of stocks is if you have a technical or fundamental reason and if that is the case, you should have a plan including buy, profit, and stop zones.
Just make sure to keep calm and remember that sometimes missing out on a trade is better than having a good chance to lose money on that trade.
So just remember. Do not chase and always have a plan.
The great Warren Buffet said, “The most important investment you can make is in yourself.” We couldn’t agree more. The more you can educate yourself, the better trader you will become. Read books, search online, watch videos, and join stock newsletters/chatrooms to hear what other traders are saying.
Make your own trading rules.
Every trader is different and so is every trade. Know your weaknesses. Do what you’re best at. Create a trading journal to track trades and find out what you’re best at.
See the mistakes you’ve made and make sure you do not make them again. Print out a list of your rules to have near your trading screen at all times to remind yourself of what to do and not to do.
Do not trade with emotion.
This is one of the hardest things to do, but it is good to start practicing it early. Emotions can quickly make you change your plan or keep you from executing your plan.
This is one reason why it is smart to write down your plan before entering a trade and keep it in view. If you find yourself not sticking to your plan, reevaluate your trading and make sure you are heading in the right direction.
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