What do I mean by “links”? I’m referring to five skills or mindsets that are related, like chain links. You need all five to get started with day trading.
If you’re great at only four of them, then you’re definitely not long for day trading. You’ll wash out as soon as your money does. You’re only as good as the weakest link in your chain. So, what are these links?
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Link #1: Drive
You need to be very driven to succeed as a day trader. You might be thinking to yourself right now, “Hey, that’s an easy one! The only reason I want to get into day trading is for the money.“
I’m here to tell you that just focusing on making money will not be enough motivation to get you through the tough periods of day trading — and there will be plenty of tough periods, including all the nights, weekends and setbacks. Why? Because these days, money is not silver coins in your pocket, and not even paper in your wallet. It’s blips on the screen.
You can do a lot with blips, but you need to strengthen the “Drive” link by asking yourself one question: “What do I want to do WITH the money?” Maybe your deal is to fund an orphanage, get your parents fixed for life or buy your dream house on the lake. Any of those or similar purposes will be a good start. But to amplify your drive, amplify the images in your head. Every day, see yourself using the money to accomplish your goal and imagine what it will feel like.
Link #2: Computer skills
I know many traders, and none of them is a “hunt and peck” sort of typist. You don’t need to be blazingly fast in order to day trade, but you do need to be faster than most people. Your goal should be to type letters, numbers and function keys without having to look at the keys. At that point, it begins to become an extension of your mind.
Fortunately, this link in the chain is straightforward — you need to put in the practice. There is no shortage of typing apps available these days. Pick one and practice for 15 minutes every day. I used to sit with my keyboard on my lap and practice while I was watching TV at night. I’d do a drill and occasionally look over at the TV. It made the task more entertaining, and soon, I was good enough that I rarely looked at the keyboard while trading.
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Link #3: Emotional regulation
This is a two-part item: First, you need the awareness to know when you’re out of emotional balance. All of us are generally aware of when we get annoyed, distracted, jealous and frustrated. But because day trading happens so fast, you need to be aware of these emotions flashing through your head as they happen. Otherwise, you’ll become what I call “emotionally hijacked.” I can recommend a book on mindfulness that can help. It’s Wherever You Go There You Are, by Jon Kabat-Zinn. Mindfulness is not meditation; it’s a way of paying attention to your thoughts as if you are an observer of them. It’s good stuff for day trading and for life.
The second part is the regulation of those emotions. It’s not much use if you realize that you’re off the charts on FOMO and are about to do something rash — unescapable to stop yourself in time. You can get much better at this key skill over time if you keep a daily trading journal. In it, you take a few minutes after the day’s trading to jot down a brief but honest account of what just happened with your trading. I have also found meditation to help regulate my emotions. The stillness is a way to recover from an intense trading session and regain my emotional balance.
Link #4: Situational awareness
This is about getting a feel for the markets that go beyond just having the right charts and numbers in front of you. It’s knowing when the market is staying hot, and it’s time to let your winners run to some extent. Then, you must know when the market is entering a cooling phase, and you need to ease off the throttle and not throw away your profits in a vain effort to make up for bad trades. The market does not care how you feel or how well or poorly you’ve done recently. You must trade the market that’s right in front of you. It helps if you’re correct about the nature of that market.
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Link #5: Discipline
This just may be the most important link. That’s because if you have cultivated your self-discipline, it will save you during trading sessions and help you work on the other links above.
You simply cannot have too much discipline, but it’s easy to have too little. Day trading is a cauldron of emotions and activity, and when you have the discipline to follow your pre-established trading guidelines — even in the white heat of the moment — you just might do OK. If you let your emotions take control of the keyboard, you’re toast. Your trading journal and guided meditations will help strengthen your discipline.
I’ve made a bunch of money by day trading, but have I “conquered” these five links? No. Do I have more good days and fewer terrible ones? Yes. As with every other skill, you get rusty if you don’t practice regularly. One of the great things about day trading is tomorrow morning we all start with a clean slate. How you’ve practiced and strengthened those five chain links will largely determine how your trading day will end.
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