In a previous career, the objective of my trading was to grab as many points or “ticks” as I could out of the day’s trading action. Generally, the wider the trading range for the day and the greater the volatility, the more money I made. The action since the beginning of August has been fertile territory for the day trader. Unless you are a day trader, read on for my own educated advice.
Trying to establish a *position* or fundamental/technical trade in this sawtooth volatility is masochistic.
First, let me say that becoming a profitable day trader is not easy. You must watch the market at all times and you must learn the discipline to cut losers quickly and let winners run. At least 2/3 who try to become a day trader will fail and it will most likely take a year or more to turn the corner. The good news is that a successful short term trader can bring knowledge gained from day trading into longer term trading strategies.
The first obvious and hardest lesson is to get rid of all pride, all pretense of “beating the market”, and to be able to admit defeat quickly by cutting losers short. The reality is that over short trading periods, you will have a number of losing trades that is nearly equal to the number of winning trades. The difference between success and failure is cutting the losers short and letting the winners run. Over longer periods of time you might be able to increase your success ratio, but you still need to exert discipline over your emotions.
The second lesson that can be applied is to never force a trade. If you watch the markets all day long, you almost feel compelled to be *in* them. The reality is that you should almost always force yourself to wait until you cannot sit on your hands anymore. As a daytrader, these compelling opportunities could be once or twice a day. As a long term trader, these compelling opportunities could be once a year. It is ok to sit in cash or to have most of your risk hedged away. Being in cash or net neutral allows you to jump on an opportunity when you believe it looks screaming rich or screaming cheap. Those who were anxious are most likely sitting on a loser, praying that the trade comes back, and too fearful to double down.
So stop worrying about “missing out” lest you want to get chopped up as well.