



So You Want to be a Day Trader





I'd like to just highlight a few things I want to cover in the future on here:





-The deception in Level 2

-Proper backtesting of data

-Understanding the effects of specific catalysts

-The power of negative press

-Staying focused during down time

-Proper trade journaling

-Propped up stocks

-Sympathy movement

-Algorithmic trading

-Discretionary trading vs Systematic trading

-Thinking ahead of the herd

-Swing trading catalysts





I'm sure I'll add to this in time.

Day trading- If you're reading this I'm sure you have some understanding of what it means. Basically, day trading is buying/selling securities within a short-term period. This time period can be anywhere from a few seconds to a few hours, but no longer than one trading day. Deciding to hold a position for several days is called a 'swing trade' which I will cover a little later.To discuss the appeal of day trading I'm going to tell you a little about how I started. Back around 2012 I was on YouTube, mindlessly browsing through videos when I stumbled onto a video of a guy and his laptop. The title was something involving making thousands of dollars while on vacation. I watched the video and it seemed like an unbelievably easy thing to do. He just bought a stock and then sold it a few minutes later. Zooming in on his P/L, it said he had almost $5000 in profit 'realized'. After that, he went over why he took the trade. It was 'his pattern' that he teaches... simple as that.Even though I was intrigued by what I saw, I didn't pursue it at the time because I honestly didn't believe it. It just seemed too easy to make $5,000 in a few minutes. Why wasn't everyone doing this if it was so easy? Well, a couple years later in 2014 I stumbled back onto the same person, still apparently making money from lavish hotel rooms around the world. I was 25 years old at the time and had a decent job making decent money. One thing I also had was free time. I watched more of his videos and videos from other day traders too. After watching these people post their P/L and insane amounts of money, I started craving it- craving a $5000 a day job. I had my list of things I'd buy when I 'made it': Aston Martin Vanquish, 700k home, home movie theater, private jet charters, a personal chef.I had a plan for all of this. I'd learn the markets for a few months and then open an account with a respectable brokerage. After that I'd follow the strategies I studied and you know, make a shitload of money. Over and over in my mind I'd fantasize about what I'd do with all my money. I was going to donate some, spend some, take care of my family, save the rest, and then retire in fifteen years.That's the appeal. The appeal of quick money with little work and no pain. Who can be in pain when they're in a four star hotel room sipping a mimosa while making thousands before they take their morning shit? With the social media boom you are now exposed to people posting pictures of their cars, houses, vacations, and piles of money they so effortlessly drag in from day trading. This has led to an increase in retail traders trying their luck at day trading. This has also led to an increase of marketers with a magic formula for beating the markets.I'll be blunt in saying that day trading is hard. No, day trading is absurdly hard. If you've browsed YouTube or Googled 'day trading strategies' you'll get loads of people with secret formulas. They're all willing to give you their secret formula for a low cost of a thousand or so dollars. Don't worry though, you can join their chat rooms instead for the bargain of a couple hundred bucks a month. They're practically losing money on this deal and you don't want to be poor the rest of your life, do you?In the first scenario lets say you join up with a chat room. You get in and you're enjoying your new home with whomever you chose. Okay, so now what? You have all these people calling out things in chat. They're saying things like, "AUPH Hod!" or "CLNT holding support" or "DRYS R/S". That's cool, so what do you do now? From my experience the chat rooms are a hindrance to newer traders due to all these nonsense callouts. It's 'analysis paralysis' and shitty analysis at that. Now I'm not saying chat rooms are bad. I've made plenty of great trades from chatroom callouts. Why they're rough is because newer traders aren't usually as adept at sifting through all the irrelevant bullshit.Now, the real reason I use chatrooms is because they're tiny little pump and dump factories. The guru or someone respectable in the room makes a play and calls it out. Wonder what's going to happen when hundreds of other people follow them into their position? The stock is likely going to go their way and then they get to say, "I just used the technique you can buy in my dvd for $1000."So you want to know the real truth about day trading? The truth is that you will probably fail. The truth is that everyone thinks they have some special gift to overcome the market. Day trading is mostly just clever marketers selling you overpriced garbage, pretending they're your friend or mentor, and letting sheep pump the stock for them so they can sell into the pressure and boast a 60-70% win rate. Day trading is smoke and mirrors. The average retail trader is being deceived by their guru, by the market makers, by the Level 2 data, and by the companies themselves in many cases.There's an upside though! Once you lose enough money and if you have the right mindset, you'll start to see through some of the smoke. If you can sift through enough of the garbage and filter out some of the noise, you can begin to see the true form of the market. The market is unforgiving, unpredictable, wild, and amazing. It'll do things that seem to have no explanation; things that go against everything you've learned. The unpredictability is what draws some of the best traders to it. It's the unsolvable puzzle.Ok, so if it's unpredictable, how can anyone make money? Well, even though we can't predict with certainty what is going to happen, we can still play the odds. This requires data, and this I believe to be one of the most important first lessons new traders should learn. Back test your data! I don't care what patterns you play if you're a technical trader. The market is ever-changing. Depending on market sentiment, you could be playing a dead pattern. One of the positive things is that you have a plethora of past data to sift through. Everyone loves sifting.Trading is a rush. It's fun and awesome to get into a community where you can show others how super smart you are when you make a good trade, and then you can bitch to them when the market inevitably screws you. One of my favorite things is the feeling I get when I know I followed my plan and stayed disciplined. Another is when someone I trade with made a great play and we can talk about it together. In my opinion, trading (when done correctly) builds discipline and bonds like hardly anything else. Kind of funny for a job that has you sitting and staring at a computer screen alone for half the day.As much as trading is about the money, I really think taking the money out of it makes it so much less stressful.Let me digress, if you're trading with money you can't afford to lose, you will fail. Trading is a mental game and I've never seen anyone be successful that 'needed to win'. Not one person. No, you will not be the first.Lets get back to taking the money out of it. What I mean is just focus on trading well. Follow your rules and respect the plan you created before taking the trade. When you're in the trade, your mind will react differently to the price movement than when you're out. It might hurt... hurt so bad that you want out NOW! That's when I really think a point is reached where a person can take a step to being a good trader. They take this step by embracing the pain and understanding that it's part of the game, not by letting it affect their trade plan. I promise that after you're out of the trade, even if it doesn't go your way, you'll be more confident in yourself after sticking to the plan.So trading can build confidence, discipline, and create positive relationships with others. What else? Contrary to the beliefs of many other investors, you can actually make very good and consistent money day trading if you're willing to stick it out through the hard times and put in the work. Many other types of investors believe day trading is a fool's game. They're right to an extent. In my opinion it's a much harder approach to the markets than long-term investing or swing trading. The reason being is that the intraday charts are noisy and easily manipulated. This is why I have trouble embracing the pure technical approach to day trading that people seem to have adopted. To increase your chances of making a successful trade, you need to take multiple factors into consideration, rather than just what the chart looks like.In my opinion, the technical aspect is important in trading, but it's just one of many ingredients in creating a trigger for me to take a position. The great thing about trading is that there isn't just one approach. Some people feel comfortable as long-biased traders, while others go short nine out of ten times. Their triggers are all different. People may look for strength/weakness in the Level 2, or maybe they wait until a big support/resistance level is cleared and retested before taking a position. Some may use event-driven catalysts to take a position, such as a press release or a news article. Others will go short on overextended parabolic moves after seeing weakness. The overarching trend that I see with all successful day traders is that they're comfortable with their risk, whatever it may be.This begs the question, why not just use someone else's triggers to take a trade? As I said earlier, trading is a mental game. You're not only playing against other people and super computers, you're playing against yourself. I've tried using other strategies blindly to make trades. It made me feel uncomfortable and I was constantly second-guessing my entries and exits. It just didn't feel 'right'. How I got past this was by trading a mishmash of styles from traders I thought were successful. Guess what? I still lost money. In hindsight I can easily say why I lost money. I did what I thought was comfortable. In the end, it isn't about what feels comfortable. Using someone else's triggers and creating my own based on the ones I liked didn't make up for lack of a thorough trade plan with proper risk management.Creating a well-defined plan of action is a vital step in becoming a successful day trader. It takes comfort and emotions out of the equation and allows a trader to think objectively, using probabilities rather than gut feelings. It seems simple enough, right? Well, this is where it gets a little complicated.Here's an example trade plan for me:I am typically making my plans premarket, using premarket volume and price movement to determine if I'm interested in a security. As is the case with the vast majority of day traders, I like high relative volume. I'm looking at mainly small and mid-cap stocks that have a history of big intraday movement. As I make my watch list, I'm also looking at what was making big moves the previous day(s) on high relative volume. The reason I look for a high relative volume is because it means there are a lot of other traders watching it and taking positions, making the stock more liquid and easier for me to take a position in.Volume seems simple enough, but it's deceptively complex. When I'm looking at previous price movement of a stock, I'm also interested in the volume at certain times and what catalyst, if any, caused a volume spike in the past. Not only am I looking for that, I'm looking for price levels and times of day where there seemed to be a spike in volume.How did the stock react to the influx at the time?Typically for how long did the reaction last?Are chat rooms and twitter usually all over this stock?What's the overall sentiment towards this stock, the sector, and the market as a whole?Are shorts easy to borrow?What catalysts has it reacted to in the past?How are the fundamentals? (I'll go deeper into using fundamentals in future posts)What are major levels where there seems to be buying/selling pressure?Those are just some of the questions I ask myself before even creating a trade plan. After marking down all information I think is relevant from those questions, I'll start to form a trade plan. My trade plan can be summed up in two words: risk management! How can I create a plan when I don't know what the stock will actually do after the market open? Basically my trade plan is a bunch of"if..., then..." statements. For example, if the stock I'm watching finds resistance at a level I determined to be a multi-week ceiling, then I'll wait for it to reject. If it rejects, then I wait for the selling pressure to dry up. If the selling pressure dries up and the stock begins a bounce back, then I'll look to short on a lower high. That is a simplified version of using "if..., then..." statements to determine an entrance.Creating a trade plan will differ from person to person. You may not choose to use "if..., then..." statements, and maybe you don't care about relative volume or chat rooms. Guess what? That's completely fine. In the end, it is more about your personality and risk tolerance. These are things that you'll come to understand as you trade more.To start you'll need a platform and a brokerage. A lot of brokerages offer a platform when you put your money in, but most of these are pretty basic and would make it almost impossible to trade well. Likely, you're going to need a paid subscription to get the best platform with up-to-date market data and Level 2 data. I'm not going into rating platforms on this post, but you can find information all over YouTube on rating platforms.Some people like to start by paper trading. Basically, paper trading is trading with fake money. You see the same charts as everyone else, but when you execute an order, you're not putting any real money on the line. In truth, it won't prepare you for the mental aspect of having real money on the line, but it will prepare you for executing orders properly and getting the hang of your platform. Most platforms do offer a paper trading account with a subscription, which I've always started with when changing to a new platform that I'm trying to get a feel for.Once you get the hang of your platform, the next two things I'd suggest are finding a quick and reliable news source, and investing in a scanner. Platforms with paid subscriptions sometimes have both of these, but not always. Again, do your own research and find something that fits your style and personality. Scanners are not something necessarily needed to be a good trader, but they can give you the edge of seeing a stock make big, quick moves before other retail traders.I'm not going to get all gushy and say, "YOU CAN DO IT IF YOU TRY!"No, you probably won't. That's the shitty truth of it. I'm not trying to sell you my product and tell you that all the other people who have failed just didn't try hard enough. That isn't the case. The truth is that very few people can do this. They aren't smarter or better or more of anything than anyone else; they just have the right mind for this type of thing.Here's my question to you: Why not find out if you're one of those few people?