People who spend hour after hour in front of a monitor waiting for the next market opportunity to show its face are a special breed of entrepreneur. While most of us are content to enter and exit our positions on a weekly, monthly or annual basis, day traders are typically at their job for 20 hours per week or more. That’s a lot of screen time! And it’s a demanding job even for the most experienced veterans.
What skills do you need to take on this unique career? For starters, the watchword is “s-l-o-w.” That means you need to avoid the common human urge to jump in with both feet (and all your money) and beat the market at its own game. Individuals who do that usually end up broke and disappointed within a couple of weeks. But in addition to a gradual start, it’s important to do preliminary research and find out about specific laws that govern this intense way of making a living. After that, as one common saying goes, it’s wise to specialize. You’ll also need to employ smart money management and use tested entry and exit strategies.
Here is an overview of the essential skills for day traders:
Start Out Slowly
People who are too eager risk losing their entire account in a short amount of time. If you are lucky enough to find a mentor, you’ll be advised to do nothing but watch market action and make simulated trades for at least four weeks. It takes that long just to get a feel for what the constant price-watching does to your brain. Nearly every experienced trader says the same thing about those first few months, pointing out that the relentless deluge of data was just too much for their mental and emotional capacity. Even simulated trading will start to wear you down after a while, so be ready to begin your new career at a snail’s pace.
Know the Rules for Pattern Day Traders
If you’re still at the practicing stage and haven’t yet committed to a trading career, be careful. If you break the pattern day trader rule, your broker will either warn you or suspend your account for 90 days. What is the rule? You run afoul of it if you make more than four round trip trades within a five-day period. A round-trip is a purchase and sale of the same security during a single session. It’s easy to get hit with a penalty on this point, so keep careful track of every security you buy and sell, and the exact time you enter and exit. Once you are actively trading, you won’t have to worry about the rule anymore.
Seasoned professionals in this business typically specialize in just a few stocks. A common approach is to deal with two competitor companies’ shares. Think Coke and Pepsi, Microsoft and Apple, or Ford and GM. The wisdom here is in the fact that you have lots of opportunities for profit and can specialize in a single niche of a single market.