When you are actually trading, you want to be consistent in what you do. Consistency breeds good results. In this chapter, we are going to take a look at a few things that affect your consistency as a trader. A lot of new traders wonder what a typical day trader salary is. There is no straight forward answer to this, and one of the factors for day traders making money is consistency.
Many people get into trading hoping to double their money overnight from the next hot pick. This is almost like buying a really expensive lottery ticket. The odds will never be in their favor. When you are day trading, always seek consistent gains. Every $100 profit adds up, and before you know it, you would have accumulated a substantial gain. Many people compare trading to baseball. If you are always looking for the home run, it is more likely that you will strike out before you find one. Remember, four base runs are almost as good as a home run, every little profit adds up. When you are just starting up, aim to grind out consistent profits.
When we talk about consistency, it doesn’t necessarily mean that you have to be consistent in just your gains or profits. Even more importantly, you have to be consistent in your strategies. If you find or adopt a winning strategy, try to stick to it. Many traders have the “Shiny Object” syndrome, in which they chase every set up out there and hope that every single strategy will work out.
When you find yourself hoping for a profit after you are down, it is time to get out of the trade and adjust your mood and mentality. The best way to avoid Shiny Object syndrome is by staying completely focused on the task at hand, and push out any potential distractions around you.
Being consistent also means that there will be days when you don’t trade, simply because no stocks present an opportunity to trade according to your strategy. Learning when to not trade is always the hardest for a new trader to master. A lot of traders get hooked to the stock market because they are drawn to the adrenaline it offers and the prospect of making money quick. Being addicted to the stock market is dangerous, because you are led on by emotions.
Traders, Not Investors
Traders are traders, not investors. Company fundamentals should mean nothing to day traders. Day traders trade the stock chart and take advantage of people’s irrational emotion; they ride the trend of the chart and book profits quickly. Investors such as Warren Buffet buy and hold a stock for the long term but if you bring that mentality into day trading, it becomes dangerous. A good portion of the companies that day traders trade might have virtually non-existent fundamentals. Some could be millions of dollars in debt and have no long-term strategies at all. However, day traders still make money off their stocks because of the temporary emotion people have on the stock. Emotion creates volatility and volatility feeds traders.
This doesn’t mean that they completely ignore fundamentals; traders just need to know enough about it to know that it will not affect the trading. For example, if you know that a FDA news release for a stock is happening at a specific point of time, you don’t want to hold the stock into that news. A trader also does not hold a stock into earnings release because of the uncertainty involved. You will never know how investors can react to a piece of earnings news. Instead, what you can do is play off the emotions brought about by that piece of news whether good or bad, and react accordingly.