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Day Trading Lessons

Day trading is not easy. Many, many, new traders are flocking to the internet pursuing the dream of quitting their day jobs to spend their days in front of a computer, chatting with friends, and trading stocks. They do this because of the "promised land" as it is portrayed in financial papers, magazines, and other trading publications. For one reason or another, this "promised land" is why we are all here, and we all strive towards the same goal. Yet I feel it is important to note that the portrayal of this art depicts only the success stories without ever mentioning the countless numbers that will not succeed. And countless they are.

Day trading is a learned skill, but just as important, I believe that many are predisposed to success or failure before even entering their first trade. The characteristics of each one of us largely determines the number of our successes and the amount of our failures, somewhere in between these numbers exists ultimate success or failure as a trader.

Many will claim to have the secrets to being a successful trader. No one trait or system will determine success or failure. You must find your own path and develop your own tolerances, skills, and systems based on your characteristics, and yours alone. This is not to say that you should not pattern yourself after someone whose strategies or tactics you respect. Quite the contrary, surround yourself with those people with whom you share similar characteristics and disciplines, but never try to become something that you are not. Always, always, be willing to learn from both success and failure.

I truly believe that success as a trader is determined by 75% discipline and 25% capital preservation. Yes, "preservation", not "appreciation". Through this model, I am suggesting that a person with the financial section of a newspaper and a decent set of darts could become a successful trader. And I truly believe that this is possible should that individual also have the discipline necessary to make smart trading decisions. But you have so many other tools at your disposal to help you make more informed stock selections. For each one of us, these tools will be different.

Let me focus on the most difficult, in my opinion, discipline that one must learn before success as a trader can be realized, "Accepting Losses". To illustrate this discipline, let me quote a section from "The Compleat Day Trader" by Bernstein (McGraw Hill). Please note "Compleat" as in "Expert" rather than "Complete".


Accepting Losses:

"The successful day trader must learn how to accept a loss and when to recognize that the this rule is being violated. The day trader must be willing to accept what he or she has achieved by the end of each day without undue frustration and/or wishful thinking --win, lose, or draw. As human beings we always look back on what we have done, often with regrets, thinking that we should have done things differently. Although in many cases it is certainly true that things should have been done differently, lamenting that fact is not constructive. Learning from it, however, is the appropriate response. Each loss, if taken at the right time, is a lesson. Each loss will teach you something important. If the amount of the loss is approximately what it should have been in terms of your system or method, then you have learned that you can follow your system. If, however, your loss is not taken on time and therefore becomes larger than it might have been, then you have learned that to go against your system will cost you money."

He goes on to say later that: "...perhaps 75% or more of all large losses are due to the fact that losses were not taken when they were small or relatively small or when they should have been taken."


There is much more to the discipline of accepting your losses than simply realizing that you must do so. I strongly urge you to have a plan in mind with each trade that you make BEFORE execution. Know your loss tolerance and take steps to execute your discipline.

If you have misjudged the direction of an issue once already, do not compound your loss by misjudging yet again. I cannot tell you how many day traders I have seen become long term investors due to thislack of discipline. It is not easy, but it must be done.

Goal based trading, plain and simple. If you do not have a goal in mind before you execute the trade, you have already broken what many, including myself, would consider as a fundamental discipline.