CUT YOUR LOSSES
Whenever a person enters a trade he or she may get biased and should control the urge not to invoke stop loss.Cutting your losses is very important and healthy for surviving long term in financial markets.Markets are very fickle and one must not understand that opportunity is lost as there will be another opportunity waiting to be grabbed because of the nature of the markets.Whenever a trader enters a trade the belief is that it is correct but market movement is not always in your favour and as such it is required to cut your losses at an opportune time where you feel that the trade has gone wrong and should not kill time or wait for the tide to change.
TRADE WITH THE FLOW OR TREND
Many day traders have the tendency to trade against the flow of a particular commodity.It is risky and dangerous.One should always try to gauge the sentiments of the trading product and trade accordingly.Day trading can attract you to short or buy products that is costly or cheap but it may not work in the short term.It is advisable to trade with the flow.For very short term trading it is advisable not to try against a rising product as that may increase your losses and wait for the right time to enter if you want to trade against it as that opportunity will be few because of the positive sentiments in favour of the product.
MAXIMIZE PROFITABLE TRADES
We should always try to maximize our profits in order to become a successful trader.Traders tend to hold their losses instead of profits and end up losing money.This may be a major reason why the success of day trading is so low.Say For example if a trader has bought 1 lot of zinc at 2300 and market is quoting a price of 2306 than instead of booking the profits trader can put a trigger price of 2303 and hold.If market goes down than you will book profits at 2303 and if it goes up than you make a healthy profit.Similarly you should increase your trigger price as the market goes up.You can increase the time frame of a profitable trade only by involving a small portion of your profits in anticipation of a better return.
UNDERSTANDING AND TIMING THE MARKET
You should have a good knowledge of the macro parameters and should remember technically important figures While trading you have to take very fast decisions and one should have a good understanding of the products and an overall view of the products.Timing is a very tricky issue and should be dealt with caution .We should look at all the parameters like technical levels, flow of trade, market sentiment etc before entering and executing a trade.News flow can also alter the market movement of a particular trade.Understanding of tools like graphs, history, and pattern can minimize your losses.
Risk management is a very effective tool in order to become a successful trader. Sometimes when the market is volatile and an opportunity arises than the trader should not get carried away. You should know your financial status and take risk accordingly.We don’t know whether the opportunity is for making or losing money.You should always be able to calculate your risk reward ratio and trade accordingly.Managing risk also means that you should keep some funds extra so that if there is any adversity or liquidity issue in the short term than you can tide over the crisis.Managing your day to day positions is important and one should not invest their trading limit in a single product.
Day trading is dangerous and really there are no fixed formulas for being a successful trader.But that doesn’t mean that you will increase your probability of losing money by being ill prepared for trading.No tool in this world can guarantee you success but it can definitely increase your chances of success.