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Risk Management
The single biggest contributor to your trading success will be how you manage risk. Preservation of capital should be your main concern. You must learn how to take losses. Just because you have a losing trade, does not mean the trade you did was wrong! Nobody can possibly be right 100% of the time, and in fact, it is not even that important to have more than 50% winning trades. However, letting a small loss turn into a big loss is the quickest way to ruin in your account.
There is no single right amount of capital to risk per trade. Most professional traders will not risk more than 2% of their trading equity on a single trade. If you are new to trading, it is important to risk even less, until you become more comfortable with the methodology you are trading.
It is also important that you do not over trade. You do not always need to have a position in the markets you are trading. If you are not comfortable with the market or any of your positions, just get out or stay out until your mind is clear. The fact is, successful trading has a great deal to do with your psychology. As with a martial artist, if your head is not in the fight, you will lose!
Day Trading
The Bestdaytradingstocks.com style of daytrading involves the individual stocks, stock index futures (particularly the E-Mini S&P, E-Mini ND100, and E-Mini Russell 2000) and Exchange Traded Funds (ETFs). We are looking to identify what Gary Smith described as a “runner” day, when the market trades in one direction for the entire day. As such, we are not looking to scalp in and out of the market, although the advent of electronic trading has eliminated much of the slippage in these markets, making it more possible to be successful as a scalper from a desk.
The first order of business is to identify those days that have the greatest potential to develop into a runner day. As Toby Crabel and Gary Smith both realized, this potential is greatest on days after there has been some range contraction. Range contraction tends to be followed by range expansion. Crabel also conducted significant research on various price patterns to determine whether such patterns provide higher probability for success. Smith’s focus was more on sentiment and seasonal patterns in the stock market.
Ultimately, however, the day’s price action will determine your probability for success. Reading the tape is essential in successfully daytrading stocks, ETFs and stock index futures. If your market of choice breaks out to the upside, but the underlying market is weak, you should consider passing on the trade.