10 Steps To Professional Day Trading

Everyone trades a little differently. The trading method outlined below is MY personal approach to trading. This method has worked for me for the last 20 years, and has helped me to avoid big draw downs since the mid 1980's. My trading strategy has helped me to make a good living trading.

It takes some time to learn my method of trading because it's based on tape reading and getting a "feel" for the market. This is *not* about a fast,easy formula to "get rich quick" while you sweat out every trade. Instead, this is about developing confidence and trading consistently without fear and without big draw downs.

Here is my 10 Step Approach to Learning My Style of Trading:

1. Practice exiting trades at break-even, using a one-tick target, a two or three tick soft stop (mental stop) and a 1.5 point hard stop. Never *allow* the market hit your hard stop. Exit by moving your target toward your hard stop, not by moving your hard stop towards your target. With time, all of this must become a reflex. You won't always be able to keep your losses down to 2 ticks, but only on rare occasions should you find yourself letting the market hit your hard stop. ("Rarely" means only about once every 50-100 trades after you get the hang of it.)

Even though your entries won't be good enough in the beginning to make a profit trading these tight soft stops, your entries will gradually improve until you turn the corner and become profitable.

Learn exits and entries separately. Don't let the one influence the other.

Taking losses this way takes dedication and discipline, so stick with it. It's the key to confident trading. If you never take large losses (and rarely medium size ones), the fear of loss pretty much goes away, and your confidence grows. Especially after your entries improve enough to support a "scalping" type exit strategy.

2. Every trade *in all market conditions* begins as a scalp. Let me clarify this: if you're in a choppy market and you're looking to get small gains, like a point or so, manage your initial hard and soft stops *exactly* the same way you would in a quick trend or any other type of market. That means keeping losses as close to 2 ticks as possible, taking lots of break even trades and exiting every time the market doesn't give you *instant gratification* (within a minute or so).

No matter what the market is doing, you must demand that it moves in your favor right after you enter, otherwise you get out as close to break even as possible. This means you'll be closing a lot of trades near break-even within the first minute. This is the foundation of learning to trade for consistent gains.

3. Don't worry about the commissions on break-even trades. If you do, you'll hold on to losing positions, begging them to turn around for you. This is called *hoping.* In this business, this type of *hoping* is the kiss of death. Your money-making trades must move your way in the first minute or less. When trades don't act right in the first minute, most of them will hit your hard stops.

So don't get hung up on the fact that your broker loves you. Who cares if he/she makes a living?

Your concern is *limiting losses*. I care more about this than anything else in trading. (Well-timed entries make my tight soft stops possible, so they're almost as important as the exits.)

4. Practice your entries until your timing is so good that you can *reasonably expect* the market to go your way immediately, before it goes more than 2 ticks against you. This is not easy at first, but if you stick with it, you'll get it.

5. Practice fading the emotional extremes on your entries. (Fading means entering in the opposite direction of the market's last move.) When an extreme NYSE-Tick (often above 1000 or below -1000) occurs at the same time the market accelerates into a support or resistance area, look for a price stall or reversal and fade the move. Fade the emotion.

6. Rarely, if ever, *chase* the market on your entries. Wait for a pullback to get onboard a trend.

I favor shorts over longs... I can get out of a short position quicker than I can get out of a long position. I don't know why. I like to say that I "see gravity better than helium." In the rare strong-trending markets where I may chase an entry, it's going to be a down trend, not an uptrend. I don't trust up trends enough to chase them. Maybe it's just a personal quirk and maybe not. I honestly don't know.

But it's interesting to note that most (not all) professional traders I've met are Bears and prefer short positions over longs. You should give it some thought and find out which direction works better for you. Are your losses bigger on shorts or longs? Specialize in one direction and trade the other direction only when things are looking real good.

7. Never let a gain turn into a loss. This will mean getting out of most trades a little (or a lot) too soon. You just have to live with it. Swing for home runs (greed) will ruin your trading. There is no mechanical formula that I know of, (such as, "move your stop to break even after you get 3 ticks gain") that will work. You have to develop a feel for how the market is acting at the moment, and use your feel to reduce your target or advance your hard stop. This comes with experience.

8. Develop a feel for the big picture movements of the market, not just the intraday action. Use the end-of-day market internals to analyze the market's mood and develop a daily bias.

9. Practice does *not* make perfect. Only *perfect practice* makes perfect. I learned this in my younger years, pursuing a professional baseball career. Perfect practice will keep your losses smaller than your gains in the trading business.

There are a lot of things involved in perfect practice. When you get tired, or when the phone rings, or whatnot, *don't trade*. Always, *always* exit trades exactly the way I've outlined above on every trade in every market condition. Always *wait* for your pitch, the well-timed setup for entering. Don't practice sloppy entries just because you're bored. Only perfect practice will help you. Anything else just amounts to practicing bad habits.

10. Get a mentor. I traded for 6 years before I learned to keep my losses small. My trading turned around immediately after I met my mentor and talked to him on the phone for one week. Is there any serious profession that you can learn without a mentor? Maybe there is, but I don't know of any. It's certainly not trading.

Mike Reed is author of TradeStalker's RBI Trader's Updates. He has been trading the Market for 23 years. His support and resistance numbers have been published on the internet since 1996. Mike's nightly support and resistance zones are specific and incredibly accurate. He offers an unlimited free trial of his nightly TradeStalker RBI Trader's Updates. He will be offering "live" training online as well. http://www.TradeStalker.com

Copyright 2005 Mike Reed

In The News:


pen paper and inkwell


cat break through


The Nature of the Trading Business

Consider the following: As a trader you are in a... Read More

Money Management - The Holy Grail Of Trading

Money management determines how much to risk on each individual... Read More

The Secret of Reduced Margin Spreads

One of the best kept secrets in trading is that... Read More

Forex Broker

A broker is any person or firm that charges a... Read More

Commodity Trading - Advantages and Disadvantages

What Is Commodity Trading?Commodity futures markets allow commercial producers and... Read More

Forex Made Easy for Everyone

Forex made easy is as simple as you would want... Read More

A Short Introduction To FOREX

FOREX is the world's largest and most liquid trading market.... Read More

How Do Other Countries Devalue Their Currencies?

Countries devalue their currencies only when they have no other... Read More

What is Forex Trading?

Forex, or Foreign Exchange, is the simultaneous exchange of one... Read More

Trading Tips No 1: Learn How to Trade The Moment of Truth

So you have learned how to trade the markets by... Read More

Psychology Of Trading

The psychological aspect of trading is usually underestimated by those... Read More

Online Futures Trading - Advantages and Disadvantages

What Is Online Futures Trading?A futures contract is an agreement... Read More

Ways to Acquire Discipline in Trading

One way to acquire discipline in trading..."Hey Joe! When you... Read More

FOREX - Where Fortunes Are Made Everyday

The Foreign Exchange Market ? better known as FOREX -... Read More

A Fools Game

I received an email this week with a question (below)... Read More

Crisis of Confidence in the EU

The European Union (EU) constitution was dealt a double blow,... Read More

6 Critical Factors For Successful Trading

Success in any profession can be broken down into a... Read More

How To Control Fear And Greed In Trading

There is an old saying that the market is driven... Read More

Writing A Trading Plan

All professional traders have a trading plan. Trading futures is... Read More

How To Handle A String Of Losses

Everybody hates to lose and unfortunately no one is blessed... Read More

Trade Entry Techniques

Most traders tend to concentrate on pinpointing the perfect entry... Read More

FOREX 101: Make Money with Currency Trading

For those unfamiliar with the term, FOREX (FOReign EXchange market),... Read More

The Major Players in the Foreign Currency Exchange Market - FOREX

Since the US dollar is the centerpiece of the market,... Read More

Stocks Trading - Advantages and Disadvantages

What is Stocks Trading?Companies throughout the world issue new stock... Read More

Dont Deny Reality

If you want to be a successful trader, you must... Read More

Chinas New Currency Regime

The base unit for the renminbi is the yuan, which... Read More

Why Demo Account Performance Is Often Better Than Real Account Performance

Over the past several years, the popularity of online currency... Read More

Forex Scams: How to Spot Them A Mile Away

In recent years, investors have witnessed increased number of investment... Read More

Online Forex

Q1: When you consider that the foreign exchange market has... Read More

The Yin and the Yang of Markets

I am reading a fantastic book on trading, first published... Read More

Options Trading - Advantages and Disadvantages

What is Options Trading?An option is simply granting someone the... Read More

Forex Trading Systems

The foreign exchange currency market is the largest market in... Read More

The Basics of Forex

Foreign exchange market is also known as Forex or FX... Read More