Yet, there are a formidable number of individuals who gladly take the daily challenge of active trading in search of financial reward. Estimates on the failure rates of day traders are relatively high. Of course, these figures are debatable depending on your perspective, but it is undeniable that success as a day trader requires the presence of a unique set of attributes. Character, work ethic, patience, organisational skills and discipline are a few of the qualities needed to have a shot at the brass ring.
A day trader has the freedom to trade any market, or group of markets, in which a perceived opportunity to profit is present. The largest and most liquid markets in the world are electronic in nature and readily accessible. Total daily contracts traded in a specific sector of the CME Globex routinely measure in the millions. Day traders come in all shapes and sizes, with the aspiration of profit often being the only common ground among them. For instance, a purely discretionary trader is free to adopt any trading schedule he or she deems appropriate.
If a conventional 9 am to 5 pm work day is wanted, then an appropriate market and timing strategy can be crafted to accommodate this desire. The same process can be completed if a four-hour work day is the goal, or even a two-hour work day is desired. The only rule for the discretionary trader is profit; if the profits are present, then the final timeline of the trading day is irrelevant.
Automated system trading is more complex in nature, due to the fact that many systems are based upon applying a small edge many times in order to secure a profit. While it is true that automated systems can be tailored to function only during specific market hours, it is commonplace for automated systems to run continuously as long as the market being traded is open.
The ascent of the electronic marketplace has enabled day traders to adopt a hour trading session. Ultimately, a good trade setup is a good trade setup , and the potential for profit leads the automated systems trader to a vastly different trading day.
In a fashion similar to the purely discretionary trader, the mechanical trader has the freedom to design a daily schedule without the concern of missing out on an individual trade. While a mechanical trader does employ automated systems to execute a given trading strategy, it is done on a selective basis. Trade execution is automated, but it is done at the sole direction of the trader.
In turn, the trader is free to turn the automated system on or off according to predetermined guidelines or simple trader intuition. No matter the adopted trading methodology, there are three basic components that make up a day in the life of a day trader: Benjamin Franklin described the necessity for preparation perfectly: The marketplace is dynamic in nature, with the ability to produce numerous scenarios over the course of a single trading session.
Depending on the level of preparation completed during the pre-market hours, the challenges presented during a trading session may or may not be overcome. It is common for traders who practice a trading strategy reliant upon technical analysis to have key levels and indicators identified long before they become important.
A comprehensive game plan is built through the recognition of relevant price levels and functioning indicators ahead of time, clearly defining possible entry and exit points for potential trades. MFTA is a method of analysing the pricing of a stock, commodity, or currency using charts of assorted durations.
Because day traders are interested in capturing short-term moves in price, the need for a fine-tuned entry into the market is often desired. Under MTFA, price charts are examined from longer durations to the shorter durations in an attempt to keep perspective on the changing market.
Fundamental analysis is the study of the intrinsic value of a financial instrument. Financial statements, earnings ratios, inventory reports, economic data releases and simple news reporting all provide information used in fundamental analysis. Among day traders, the usefulness of fundamental analysis is a point of contention.
Due to the fact that day traders are looking to enter and exit the market quickly, the validity of information pertaining to a financial instrument on a macro level is debatable.
However, one thing is agreed upon by all; anything that can move the market substantially in the short term must be accounted for. Individual companies release earnings reports on a designated schedule as well. These are aspects of the trade that can provide heightened volatility, and easily be identified and accounted for during pre-market preparation.
During market hours, the day trader is busy performing three basic tasks: Seeing a trade through from entry to exit can be either labor intensive or automatic. In each situation, the trade setup must be recognised, scrutinised and then executed. By far, the bulk of the time spent during a live trading session is spent searching for favourable trade setups. The trade itself is the culmination of all the time and effort that went into developing the trading plan, preparing for the trading session and waiting for the trade to present itself.
In the electronic marketplace, placing a trade is as quick and easy as clicking a mouse. The ability to interpret market data in real time is a key skill that can go unrecognised to an individual new to day trading. To keep a valid trading system operating at its maximum capabilities, it is imperative that market conditions are frequently identified and categorised to understand the strengths and weaknesses of a particular trading approach.
A number of tools are available to aid the trader in the compilation and interpretation of live market data on the fly. Trading logs, integrated spreadsheets and account summary pages can be used to record each trade in detail and analyse the characteristics of the trade in depth. A trading journal is used to record each transaction in detail. The objective of a trading journal is to provide a complete picture of trading operations to the trader for review.
Much like a professional athlete watching game film of a previous performance, the day trader can review his or her journal in an attempt to gain insight on why a specific trading session unfolded the way that it did.
The development of a detailed trading journal enables the trader to identify and improve in three major areas: The goal of journaling is to enhance trader performance, and when used diligently, the trading journal can be a catalyst for improvement. Both aspects of post-market analysis are needed to gain as much knowledge from the trading session as possible.
A detailed recap of a trading session can be a valuable tool for the day trader as he or she moves forward in a trading career. Unlike a simple profit and loss data sheet, a session recap focuses on how the market actually behaved during the trading session. The major challenge for the day trader is to objectively complete the session recap. Much like statistics for a professional athlete, the performance evaluation shows in definitive terms how well or poorly a trader or automated system performed for that day.
The session was either a win or a loss, determined by how much the value of the account grew or shrunk. Proper perspective and closure are valuable assets to the day trader moving into future trading sessions.
The key elements of the daily performance evaluation are the answers to questions pertaining to the application of the trading methodology. Again, honesty and objectivity are needed in the trader performance evaluation. Without accurate performance records, it can be difficult for the day trader to measure improvement and regression. A day in the life of a day trader can take many forms.
Essentially, it is the combination of preparation, execution and performance analysis. Depending on the year, there are nearly days on the calendar in which the markets are open for business. Given the proper perspective, work ethic and desire, success in the marketplace can become a reality to the day trader.
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