Yesterday's post initiated a flood of emails that I'm still addressing. I also post over at the Schwab Trading Community site (for Schwab clients) and one of the thoughtful regulars there sent me a link on the perils of day trading. The conclusions are a more than a bit sobering.
Although the perils of daytrading have been well documented elsewhere and many traders have suggested risk mitigation tactics, here's a few of my favorites:
#1. .Trade small until you get a consistently reliable methodology and success rate. This works best with brokers who offer a per share based commission and while you may not make the total return you're targeting, that's not the object. Practice makes perfect, but you have to practice what makes successful trades. Just trading willy-nilly makes no sense whatsoever and only reinforces bad trading habits, attitudes and technical set-ups.
#2. .Paper trade. Of course many traders who have had spectacular success with paper accounts have had a rude awakening when deploying real money. The brain knows the difference and reacts accordingly. So while paper trading can be a bit tricky, the important thing is to keep a journal of every trade, when you entered and why, when you exited and why. . .and then review each one, whether successful or not.
#3. .Find a local trader support group. Not someone trying to sell a $2000 seminar. Telechart (Worden Bros.), Metastock, Tradestation, IB, CME, and many others (including Forex brokers)have local user groups and/or offer periodic free seminars and workshops. These are great opportunities to network and get ideas. One nugget of trading wisdom can change your whole trading perspective and maybe even improve your bottom line. A search of meetup.com should provide a quick check for what's available in your area for non-affiliated trading groups.
#4. .Trade options. OK, I'm probably going to get some flack for this one but the capital requirements for trading options are a lot less than trading stocks and you can actually make more money trading an option equivalency than the underlying stock or ETF. This will require a lot more educational effort, and broker approval, but I know many traders who have gone the route of day trading OTM puts and calls with success.
#5. .You don't have to trade every day. Wait for the setups. VIXEN traders know that some days there may be only one good setup, while other days there may be 3, 4 or more. Never rush a trade. I'd much rather be out of a stock wishing I was in it than in a stock wishing I was out of it. It's easy to enter a trade...harder to get out. Or, as my pilot buddy says.. Anybody can take off will very little training...it's the landing part that gets hairy..especially if it's raining or foggy.
#6. .When in doubt, get out. Capital preservation is job 1.