Day Trading: A Few Things I've Learned Along the Way About Day Trading Success

[ad_1]

I've been trading for a long time and a psychologist for longer than that. Here are a few things I've learned about trading, the proper mindset, and the most important skill needed for trading success.

Trading is a Very, Very Difficult Job to Learn

Why is it so difficult? Many would be traders excel in other professions but find trading daunting. Because of our evolutionary history and how it has influenced the development of our brain, we are naturally hard-wired to avoid loss and also hard-wired to react to threatening situations with action (i.e., the fight or flight response). Operating in an environment that presents the threat of loss every day truly taxes our abilities. We also have limitations in the way we make decisions under risk and uncertainty. Add all this together and trading is exceptionally difficult. We truly have to learn to go against our own nature and make up for natural shortcomings in order to trade well. Because of these in-born characteristics, it takes much time and much practice to develop a set of reliable trading skills.

The Trading Industry Promotes What You Want to Hear

You would like to read a book or two, attend a weekend seminar, and then step right into the markets and begin making money, lots of it. There is nothing wrong with the dream, but like anything that requires skill, you have to work at it every day. Think about professional-level sport as an analogy. Any successful athlete has a long period of training and competitive experience, yet continues every day to build on those skills and learn new skills. It's a continuous process. Some in the trading industry promote the idea that all you need to do is follow their green and red buy and sell signals and you will have money beyond your wildest dreams. You know deep in your heart this isn't true. If it were, everyone would be wealthy. Part of the path to success is to avoid these 'too good to be true' detours.

You can be Successful Trading, but only if you Work at It

This is true with anything worthwhile; trading is certainly no different. At first, the markets are hard to understand. You see a buy setup on your indicator that worked wonderfully last week, but this week if fails and you have a loss. How can that be? It has to do with market context. It is never going to be enough to buy an indicator package, read about a trade setup in a text, or learn a set of trade criteria in a seminar. Yes, they will work, but only in the correct market conditions. Buying a pullback, for example, only works consistently when the overall market is in an uptrend. Traders who become successful work very hard at understanding when their trade setups have the best odds of working and when they don't.

One Secret to Trading Success

The key to success in this business-at least in part, and it is definitely a very large part of the game-is to learn how to read market context from the chart. This is what I call market structure. If the market overall is making higher highs and higher lows, then demand is in control and the structure is trending up. Buying those pullbacks will work well nearly every time. They won't work well if structure is not conducive to the trade setup. Reading structure is all about looking at price action to assess the selling and the buying. From this, you can determine what the market has been doing and what it is likely to do next. It certainly takes time to develop this skill, but it is well worth it.

[ad_2]

Source by Gary Dayton, Psy. D.