Day Trading Guidance by Market Key Traders

Ideal Environment

by CptNemo 6. May 2009 23:07


The proper setting for focused, uninterrupted trading is of the utmost importance in the life of a day trader.  It does not matter what he wears or where it is, as long as the trader is comfortable and able to fully utilize his mind on the task at hand.  It is necessary for each individual trader to find the specific setting in which he is most suited to trade.

 The environments in which people live out their lives have a noticeable effect on their performance of tasks.  Many people find it difficult to concentrate on work-related tasks in areas of the home most commonly used for relaxation or recreation.  Similarly, attempting to read in bed will cause many people to become sleepy, as working at the dinner table will cause individuals to become hungry.  If the environment in which the trader works can subconsciously control how he thinks, and more importantly, reacts to certain situations, it is of the utmost importance to maintain as much control over this psychological variable as possible.

 Each trader should also become familiar with the specific things he requires from a trading space.  For traders that require a clean, uncluttered workspace, extra time should be devoted every day for maintaining the workspace in such a way that it’s messy nature doesn’t interfere with the trader maximizing his potential.  Other trades, while a cluttered workspace doesn’t bother them in the least, may find an office chair with neck-support to be irreplaceable should they wish to achieve full focus.

 The trader should not partake in other activities, such as eating, sleeping, or recreating, in his workspace.  Though not of absolute necessity, the workspace should have dedicated to it an entirely separate room.  The trader must condition his mind while in his workspace to think only about work, and to leave it as soon as he feels his mind start to drift towards pangs of hunger, thirst, sleep, or daydream.  If he can condition himself to maintain his winning attitude and a high level of focus in the space that he works, and is able to keep this space separate from the rest of his life, he will find himself way ahead of the game.  

“No decisions based on FEAR” 


Patient State of Mind

by CptNemo 21. April 2009 23:01


Traders undergo specific psychological processes throughout every day’s course of trading.  A watched stock will rarely move in the desired direction quickly and deliberately enough to assuage the agitated emotional state of a fearful trader.  When the stocks fails to immediately and pointedly move in the predicted direction, the trader finds himself filled with the most dangerous of negative feelings: doubt.

 Day traders also experience a psychological roller-coaster ride when staring at a screen to discern a profitable entry.  Successful traders will calmly and patiently wait until certain that the chances for success are substantially better than a mere pull of a lever.  In this situation, as in the one before, the presence of paralyzing doubt in the traders mind is the main obstacle to long-term success.

 Ultimately, it is patience alone that separates the weak from strong, the patience to sit quietly in wait for the perfect opportunity, and the key to patience lies in monitoring one’s inner dialogue.  All humans, conscious of it or not, experience an internal dialogue.  Sometimes this dialogue helps the individual complete a certain task at hand, like when the driver of an automobile slows down and signals before making a left turn across oncoming traffic, but internal dialogue can also serve the purpose of soothing the individual and helping them remain calm and alert.  This dialogue allows the individual to remind themselves, sometimes completely subconsciously, that they have made left-hand turns across oncoming traffic countless hundreds of times in their life, and that things will be as fine this time as they were every time in the past.

 The patience exhibited by the smart driver cutting across oncoming traffic is precisely the type of patience exercised by the successful trader.  With dozens of cars whizzing by, the patient driver’s eyes slide up the road towards the horizon, and he observes the point that will most likely be safe to cross.  When that time arrives, and that slight gap in traffic emerges, he must act immediately and cannot hesitate without risk of collision.

 It is the same for the day trader.  If the trader looks up the road for a gap in traffic, or a proper entry point to make his trade, and decides upon a certain point, he must not deviate from this decision without planning the entire trade anew.  If he decides, based on a rational trading plan, to buy at fifty five and sell at fifty seven, he has no business entering or exiting at any other point without a well thought out, logical reason.

 Patience is a virtue, and no place does this truism hold more water than the stock market.  When a trader allows doubt, a facet of fear, to inform his trading decision, he sets himself up for failure.  The market does not care about the wants of an individual trader, whereas when making a turn across oncoming traffic, a mistake may result only in an oncoming driver slamming on his or her brakes in order to avoid an accident.  The market will not extend such a courtesy.  It will run over anyone and anything between it and where it is going without as much as an afterthought.  It is the responsibility, not of the market to go where the trader wants it to go, but for the trader to determine the most likely course of the market and plan accordingly.  Patience, achieved by a trader monitoring his internal dialogue, makes it possible.

“No decisions based on FEAR”


Stages of Ability

by CptNemo 12. April 2009 09:00


Traders develop in three stages: initiation, development, and mastery.  Many novice day traders, as they embark upon their education in the market, attempt to bypass the first two stages and focus on turning immediate profit – the most critical mistake one can make.    The market possesses an extremely steep learning curve, and only through slow, methodical improvement of one’s skills through the three stages of ability can a trader ever hope to master it.

The complexity of the market requires an immense amount of motivation from any person wishing to become a professional trader, and maintaining motivation without a moderate level of success is impossible for most people.  Cultivating the proper motivation for long-term success in the market requires a set of specific, realistic goals through which the trader can both observe and be motivated by his progress.

Goals are integral in progressing through the three stages of ability, though their nature will change through each.  In the initiation stage of development, the novice trader simply explores his new field and enjoys the process of discovery.  He pursues trading at this point because it is fun.  Early success, should he be so lucky, further contributes to his motivation.

Traders in the initiation stage should not focus on making a profit - it is not a realistic goal.  A novice trader thinking it possible to make an immediate profit, when pitted against the multitude of seasoned professionals on the open market, smacks of pure hubris.  His goal should instead be to learn and expand his abilities as a trader.  By instead learning to manage risk, observing patterns on the market, and developing an intuitive feel for its movement, the positive impact on his future trading is enormous.  By viewing his trades as practice trades, instead of attempts to make profit, he places himself in the correct mindset from which he can successfully move to the development stage.

The hard work of mastering the markets lies in the development stage.  During this stage, the trader works hard to develop specific trading skills and a basic sense of competence.  This phase weeds out those lacking sufficient motivation to become professional traders.  While a trader in the initiation phase focuses on enjoying himself and learning the basics of the market, the development phase is the stage in which the trader concentrates on learning different strategies and tries them out in a variety of situations.  During this phase the trader immensely expands his knowledge base and skill set. 

Though he now possesses some competence as a trader, a trader in the development phase should still focus on growth-related goals.  Profits may happen naturally in this phase however they should not be even a secondary focus of the trader.  All attention must still be focused on gaining experience. 

The trader attempts to reach his full potential in the mastery stage, and this stage is where profit is finally realized.  By this point, reaching the highest possible level of performance is the primary motivation of the trader – intense focus defines his attitude and trading consumes the bulk of his time.  Having already developed the basic skills required to trade, working diligently to achieve specific financial goals, such as a certain percentage return on his money, becomes the main focus of the trader.  While his process of learning is never complete, once in the mastery stage of ability, the trader can safely refer to himself as a professional.  He has reached his first major landmark.

Though the trader has achieved mastery, the use goals to motivate and continue to grow should never be neglected.  Whatever a trader’s stage of development, goal setting remains the most vital aspect to the learning process.

“No decisions based on FEAR”


Patient Traders Win

by CptNemo 31. March 2009 11:20

All winning day traders possess a certain degree of patience.  They wait for ideal opportunities in the same way a sniper waits to take a perfect shot.  Without a high probability of success and a pre-planned avenue of escape should he miss or were something else to go against him, the trader, like the sniper, will have a mighty short career.  The successful trader sits and patiently waits.  He watches the movement of his indicators.  He tempers his impatient urges to make entries into the market with reckless abandon.  When the moment arrives, he is there, waiting: one shot, one kill.  He has achieved his objective and exposed himself to the least possible amount of risk.  

A trader may find it difficult to become more patient.  It requires, first and foremost, that the trader admits his own impatience, something not an easy feat for many people.  Once the trader has come to terms with his own impatience, he must determine the way in which his impatience affects him negatively as a trader, and actively to correct the imbalance.  The trader should examine himself from the third-person perspective, as if watching a TV show, to try to determine how impatience impedes his ability to trade successfully.  Is his impatience exacerbated by fatigue, hunger, risk, or all three?  By determining which specific variable or set of variables causes him to act rashly and with emotion, he can drastically improve his standing in the market. 

Impatience frequently signals the trader’s lack of confidence in his actions.  When faced with the fear of a potential loss, the trader may lack the impulse control and patience to hold onto a strong stock that has momentarily turned against him, but the trader must have the patience to truly examine the situation in which he finds himself.  By doing so, and still determining that he wishes to close his position out at a loss, he has exercised patience and done the correct thing.  Many a time, however, the trader will find that, despite his temporary loss, he still desires to be open in the position.  In this scenario patience, not raw emotion, has won out, and his trading will be much stronger in the long run because of it. 

Exercising patience ultimately comes down to self-control and the ability to put off short-term wants and needs for long-term gains.  The now-or-never mentality is a the worst nightmare for anyone wishing to be a successful trader.  Akin to a poker player going on tilt, the trader who tries to will his way to success in the market inevitably ends in failure. 

In the end, the slow and the steady win the race.  Having a one-hundred percent win ratio on five trades is infinitely superior to a sixty-percent rate on thirty.  Time is always on the trader’s side.  Sooner or later, just as in Texas Hold’em, the trader will pull a high pocket pair – the perfect trade.  He will see his entry and through his patience and thought he will understand precisely the reason for its perfection.  This experience will gradually teach him to better identify these trades until one day they jump off the screen at him.  He will start to see the value of an ace-king off-suit and so on down the line until one day he has a deep understanding of how to win even with rags.  On the path to this point he must never give in to the temptation to act upon impulse.  He must always remember that day trading takes time.  Profits will come, but only eventually.  Only by remaining calm and patience can there be any long term success. 

“No decisions based on FEAR”


Metaphors and Similes

by CptNemo 23. March 2009 03:43

Similes and metaphors play an important role in both the internal thought-process of a day trader as well as in communication between two traders.  To describe the emotional reactions coupled to the movement of a stock in likeness to a rollercoaster, or to compare averaging down in hopes of breaking even to digging one’s self out of a hole is to use simile to quickly illustrate a particular situation as clearly and succinctly as possible.  Every trader uses these analogies, each having his own favorites, and they are used to add structure to an environment that often lacks useful tools for explaining particular occurrences. 

Sports metaphors also play an important role in quickly passing information to another trader with a small chance for confusion.  Traders use base-hit as a metaphor to describe a solid but ultimately small-scale win in the market, and home run for when a trade is “out of the park”.  

Ultimately, metaphors and similes can be used by a trader to keep his mind in the right place, and maintain emotional control.  By metaphorically comparing trading to baseball or basketball, the Michael Jordan truism about never missing a shot he didn’t take or Babe Ruth’s statistical record for strikeouts helps the trader keep in the back of his mind the inalienable reality that he won’t get a hit every time he swings the bat. 

Some traders choose to relate trading to fighting a war, conducting scientific research, or any number of analogous endeavors.  The best metaphors and similes are those with which the trader can most easily identify.  These easily identified intellectual aids, when utilized to enhance trading and the trader’s sense of control, in the end, will increasable productivity, and most importantly, profitability.  

“No decisions based on FEAR”