Here are my personal top 10 Day Trading tips.
1. Never trust anyone, ever. There’s a great book from the 1920’s titled Reminiscences of a Stock Operator about the famed trader Jessie Livermore. In this book they talk about all the backhanded ways people will try to get over on you. Some may say its even worse today. The sheisty ways for brokers and hucksters to siphon money out of your account have only increased with advancements in technology.
Everywhere you look, someone will be trying to sell you something.
2. Don’t drink the Cool-aid. Just because everyone else is doing it doesn’t mean you should too. This refers to trading stocks you learn about through newsletters, email alerts, advertorials and especially chat room notifications. The only reason someone would tell you to buy or short a stock is because they have a vested interest. The tipster doesn’t care if you win or lose. They may be selling sold into you, and now that trade added another notch in their belt.
When you trade a Gurus pick, you’re trading their agenda. You’re making them look good, while sometimes being hustled.
3. Never trade a hot stock pick. There’s a saying in Jim Cramer’s book Real Money that goes. “Tips are for waiters”. You should not base your trading mainly on tips. It may work out a few times, but everyone gets burned eventuality. If you’re not working a plan and documenting your trades, you’re just gambling. Find a chat room or trading service that offers a Training Class.
Prerecorded videos are OK, but a classroom environment provides more accountability for what you’re being taught. You can’t talk back to the instructor while watching a DVD.
4. Start off with a demo account. Paper trade in the beginning to become accustom to how it works and feels to place a trade. Most brokers will provide a one-week to one-month free trial of their trading platform
Use this demo period to sharpen your order placing skills. Trades happen fast. Fumbling around the platform and Order Entry window can cost you big time. Most people want to rush in and start trading immediately. There are layers upon layers of skills and technique that you’ll need to master.
Take your time in the beginning and go slow.
5. Keep a journal. As previously stated, those who trade without one are gamblers. When you document a trade, you’re helping to reinforce the lessons you’ve learned good or bad. Start a Google Doc spread sheet and begin entering your trades into your very own Trading Log.
For each and every trade you should be documenting the date, stock symbol, price you entered, price you exited and the reason you took the trade. Over time you’ll become more accustom to certain stocks and how they trade. You’ll know how they trade because you’ll have documented it.
6. Try not to wager more than 10% on any trade. Its good to diversity and own several stocks at once. There’s an old saying that goes, “diversification is the only lifeline we have when something goes horribly wrong”. Not all trades are winners, a lot of trades go bad.
If you’re betting the farm on each and every trade, that next loser could take you out. Its reported that 90% of traders lose. Losses are apart of the game. Position yourself for staying power.
7. Never average down on a loser. Sometimes we find facts and then make assumptions to sell a trade to our own selves. When you really want losing position to perform, you’ll find a million reasons to stay behind it. Sell your winners, don’t be greedy. Think in percentages. If you’re up 5% to 10%, begin planning your exit strategy. Any trade can turn bad quickly. When it does, don’t be afraid to take the lose.
8. Don’t judge your trading abilities based on your last trade. When you begin to document your trades, you’ll be able to gauge your weekly, monthly and yearly percentages. How many trades did you make, how many were winners? Use a Trading Log to keep a running total of this months trades. Knowing that you have a good monthly average can help to lessen the pain of your next big loss.
9. Learn as much as you can about Company Fundamentals. Use services like Yahoo Finance to view a company’s Income Statement, Balance Sheet and Cash Flow. An easy way to determine if a company is making money is to look at the Cash Flow > Quarterly Data. A company should be making more money each quarter. Use services such as Market Smith to view in-depth company analysis and proprietary indicators. Free Video Education
10. Sell while you still can. A good rule of thumb is to sell all or a good portion of any winning trade when it goes in your favor 3% to 10%. If you think the stock is so amazing, re-buy it later on the next move. So many traders sit back as their stock surges 1% to 10% in a day, only to watch it come back down to break even. If its worth your wild and you’ve locked in a good profit, let the trade go or lighten up your position. You’ll never go broke taking a profit.