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3 Steps to Profitable Day Trading

RagingBullRagingBull ·

You’ve probably heard this before, “90% of day traders fail.” Well, this is only true if you don’t know exactly what you’re doing. Moreover, this statistic is widely quoted, but there’s survivorship bias here. Those who “fail” may not have had enough grit or did not know the steps to profitable day trading. Day trading is not an easy feat, so you need to learn some of the steps to profitable day trading. Day traders are disciplined, know when to cut their losses and let their winners run. When you understand these factors, you could potentially become a profitable day trader.

Even if you’re not a day trader, these principles could still help. For example, not only day traders are disciplined, swing and option traders are too. Here’s a look at one trader who turned just over $15K into over $5M in a few short years using his battle-tested approach.

Steps to Profitable Day Trading

There are a few steps to take to profitable day trading. First, you need to treat it as a business. Next, you would need to practice proper risk management. Third, you to record all of your trades and review them.

Treat Day Trading Like a Business – Write Out Your Plan

When you’re day trading, you’re putting real money on the line. That means you shouldn’t just wing it. That said, you need to develop a trading plan, just like a business. In terms of day trading, you should write out a plan for each stock. Just like in business, where you would write out a plan if you’re looking to expand in an area, you need to do this when day trading stocks.

When you write out a day trading plan, it needs to be detailed with your thesis, entry points, stop-loss prices and target areas. When you have a plan, it becomes easier to day trade. That said, this should be the first step you take if you want to become profitable in day trading.

Example of Trading Plans

For example, here’s a look at how Jason Bond is able to develop winning trading plans that he sends out to the trading community.

“CLPS, NNDM, GLMD and CODX are the Fibonacci retracement setups I’m watching. However, I rarely enter momentum stocks like this early in the week, but if they hold support today, I’ll be monitoring closely for spikes. CLPS needs a day or two of rest before it sets up. NNDM is in play above $2.20’s, range to $3. GLMD above $16, range to $20 and CODX above $4, range to $5.”

profitable day trading

“NNDM closed strong in the $2.90’s Monday from my watch list and real-time alert. I buttoned up $2,000 on that one myself. That’s a textbook Fibonacci retracement, and here’s how I’m able to use these patterns to consistently generate high returns.

Additionally, here’s a look at one of Kyle Dennis’ trading plans. Check out how he’s able to schedule his paychecks by developing plans like this.

Arena Pharmaceuticals (ARNA)

Catalyst Dates: Phase 2 data due in the third quarter

Buy Zone: $46.50 to $47.50

Profit Zone: $50.00 or higher

Stop Zone: $45.00 or below”

profitable day trading

Kyle Dennis has a battle-tested strategy with biotech stocks.

Petra Hess does the same thing.

profitable day trading

Execute and Stick to the Plan

What good is a trading plan if you don’t execute and stick to it? Basically, once you write out your trading plan, you should not deviate from it. If you write out in your trading plan that you’re going to buy a stock at $10, buy it around $10. You shouldn’t chase it and buy it if it’s trading at $11, that’s how you could end up losing money. Successful day traders know this is one of the key steps to profitable day trading. If you don’t execute your day trading plan, you’ll most likely do a poor job of risk managing. Moreover, if you say you’re going to stop out if the stock falls below $9.50, don’t hold onto it in hopes of it rebounding.

Journal and Review Your Day Trades

How could you be a become a profitable day trader if you don’t review your trades? Just like in business, you need to keep track of all your trades. At the end of the trading day, you should always record your trades and note what you did right and wrong. Thereafter, you should review your trades and see where you’re making most of your money and where you’re losing money. Once you’ve figured out where you’re losing money, you could minimize those trades. Additionally, when you’ve figured out your bread-and-butter trades, you could size up on those and generate higher returns.

Now, when you’re first starting out to day trade, you need to wait a little while before you figure out which trades work the best for your style and which ones don’t. Ideally, you should review everyday and after you’ve executed more than 100 trades, you should take a step back and see what you did right and what you did wrong.

The Bottom Line

Day trading is not an easy task. However, you should follow these steps to profitable day trading. It’s not too difficult to create a plan, execute that plan and review your trades. Basically, you need to treat this like a business because money is on the line.

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