There are a handful of simple rules for long term success in day trading. The rules have to do with not being a greedy trader, having a trading system and sticking to it, and using stop loss orders. The trading system rules have to do with being in the game for the long haul and not expecting to make years of income in one day. The trading system rules have to do with keeping your head about you when everyone else panics.
Greed kills. You buy a stock or option and you are heavily in the money. Start taking your profits. If you want to ride the wave to higher profits, do it with half and then a fourth of your initial investment. You do not have a profit until you take it and hanging around until the stock reverses just proves that greed kills.
Whatever trading system you have, stick with it. If you find a better trading system then practice it in simulation trading and when you have it right add what you know and improve your trading system. Never throw away parts of a trading system that work. Often the success of a trading system shows itself in unique circumstances. Sometimes a trading system means that you trade occasionally instead of continually.
When momentum gets going it’s not something you can stop. Market psychology takes hold, stocks plummet. Hanging on to a losing stock as you wait for it to rebound can wipe you out. Having a stop loss for each trade is not a bad thing. You can always live again to fight another day if you keep some capital.
At times having a successful trading system that leads to long term success has to do with attitude. If you like what you are doing and feel good about yourself while doing it then you will tend to succeed. You will tend to stick to your trading system and day in and day out you will tend to make a little more money than you lose.
And, yes, everyone loses money. The point of a successful trading system is to minimize losses and maximize gains. The point of a trading system is to stay in the game. If you get greedy, don’t use stop losses, and ignore your system, you can lose your capital. You can always recover losses, next week, next month, or next year.
The worst recession since the 1930’s hit us recently and traders are still trading. In fact, traders, who are in and out of the market, often did much better than traditional buy and hold investors who just let their stocks slide until they couldn’t take it and then sold low. Now those folks are buying high.
Adhering to a system will help you not panic in an economic crisis and will help you get out before the roof falls in. Although greed kills, inactivity caused by not having a set of rules for getting out will lead to a slow lingering economic death.
Formulate a trading system. Stick with the trading system. Improve the trading system. May you have successful long term trading.