Once you’ve got the hang of trading, you’ll need to move forward, develop and adapt your trading skills to the markets. This involves setting realistic goals, whether based on profit-and-loss (PnL) targets or process points.
Whatever edge you currently have against other market participants, it could disappear and trading opportunities could dry up. Here are some tips to help you develop as a trader and stay on top of the market as conditions change.
As a trader, you should set either PnL-oriented or process-oriented goals. PnL goals are based on your profits, in that you set a goal that you want to make in a month or a year, as well as the amount you’re willing to lose in that time during a draw down. Successful traders keep this goal in mind at all times.
For example, one trader might look to only draw down a maximum of $1,000 before stopping trading and heading back to the drawing board for a while.
On the other hand, there are process-oriented goals. This involves looking to develop a strategy or game plan to potentially maximize your batting average and PnL. With process-oriented goals, you stick to your game plan and the setups that you’ve witnessed as having the highest win rates.
Your edge trades might not be around for long; if you don’t evolve and develop other tools and techniques to improve your trading skills, you will be stuck if and when your edge trades stop working. Hone your process, look for additional indicators, areas and techniques that can give you an additional advantage and you will increase your chances of developing into a successful trader.
If you want to know how to practice day trading, know that evolving your stock trading skills takes time. Set realistic goals, consider starting with process-oriented targets before focusing solely on profit-and-loss measures. Remain disciplined with your strategies and hungry to learn new and different techniques and you might be able to achieve your potential to be a consistently profitable trader.
Jason Bond runs JasonBondTraining.com and is a swing trader of small-cap stocks.
Traders often say that a trading plan is one of the keys to success. Before you start trading, however, you must define realistic goals and do some honest self-evaluation in order to develop a trading plan that fits your lifestyle, your needs and your abilities. That said, here are some questions to ask yourself before you start trading.
What’s your risk profile?
– I don’t like to take on too much risk. (You would be considered risk averse in this case.)
– I’m indifferent to risk; if the risk-reward ratio is greater than 1 to 1, I would consider the trade. (You would be risk-neutral)
– I like to take on risk, but still would consider the risks involved in the trade. (This is more of a risk-taking profile.)
When can you trade?
– I could dedicate 10 to 20 hours a week, since I have a full-time job. I’d have to trade mornings, late afternoons or on my lunch break to make it work with my day job. (You might want to only swing trade)
– I could dedicate nearly all my time to trading. (You could be a potential day trader.)
Why do you want to trade or invest?
– I want to create another source of income.
– I want to generate profits for retirement.
– I’m interested in the markets and want to make a sustainable living.
What’s your edge?
– I have a knack for dissecting financial information.
– I spot patterns easily, and could trade based off of technicals.
If you’re considering trading or investing, answer these questions truthfully. These aren’t the only questions you should ask yourself, but they will give you a jumpstart. Once you’ve answered these questions, it should be easier for you to determine your style of trading and the times you would trade, as well as your risk tolerance.
Keith Kern has been a full-time day-trader for 17 years; he moderates the Lightning Alerts chatroom at BiotechBreakouts.com.
The backdrop: This is a play straight off the charts, where the Russell 2000 – as represented by the iShares Russell 2000 ETF ( IWM) has been building a significant support area, trending lower but with higher lows. Meanwhile, the Relative Strength Index (RSI) for the IWM has trended higher in the last few weeks; that’s a positive divergence, a good sign.
The play: With the IWM sitting on support, use recent lows around $134 as a stop; the chart sets up for a pretty good shot at hitting the 50-day moving average, giving a target of $140. Thus the trade is to get long today, because you are looking at about $5 or $5.50 in potential upside to less than $1 of downside, a very favorable risk-reward.
If you want to leverage the small-cap play and go with the Direxion Daily Small Cap Bull 3X ETF (TNA), I’m comfortable with it because the chart is the same. It’s a cheaper play that may move a little faster, but make sure you have the strong conviction needed to play with leverage rather than sticking with the IWM.
Keith Kern has been a full-time day-trader for 17 years; he moderates the Lightning Alerts chatroom at BiotechBreakouts.com. He does not trade in indexes or ETFs at all – focusing his day-trades on individual stocks – but analyzes the market from the top down looking for his daily trading ideas. While he sometimes trades stocks that are members of the Russell 2000, he did not have any shares, options or open orders in any such stocks at the time this commentary was published.