As a day trader, you must develop a risk management strategy for maximum gains.

If you’re about to start day trading, you might be thinking of ways to maximize profits and minimize losses — this is the goal of any day trader. A few strategies can help with risk management and increase the chance of a good profit. Those just beginning with day trading may not have enough knowledge to navigate the complicated world of this investment strategy. This is why it’s very important to do your research before starting your day trading journey.

Do Day Traders Actually Make Money?

Yes, day traders do make money. There wouldn’t be an entire industry revolving around it if the practice weren’t lucrative. As a refresher, a day trader typically buys and sells stocks in a short period of time or most often, the same day, hence the name. They make a profit from the small and rapid fluctuations in security prices. The gains may seem incremental, but the accumulated amount can be surprisingly high when day trading is done consistently and with a good strategy.

So, what strategies do day traders use to generate profits? 

Scalping 

Scalping is one of the more advanced approaches to day trading. The practice entails watching ephemeral intraday price changes. A trader can buy and sell multiple securities during the day when they’re scalping. 

News-based Trading

Someone who uses a news-based trading strategy follows relevant or notable news announcements that may cause short-term market moves. This is one of the more popular strategies, and programs like Scanz are primed for this approach.

Swing or Range Trading

Swing or range trading means trading stocks that bounce between low and high prices. You can sell when the stock nears the high point and buy when it starts approaching the opposite.

Spread Trading

With this strategy, you’ll need to exploit the spread, which is the difference in the bid-ask price for a stock. You can step in to buy and quickly resell a stock if the buyer’s bid price suddenly drops.

Short Selling

When you short sell, you sell securities borrowed from a brokerage firm. You’re now “short” the number of shares you sold. Then, you buy the securities once their value drops and return them to the brokerage firm while you keep the profit. You must open a margin account to do this type of trading.

Managing Risk While Day Trading

Day trading is not without risks; you could suffer significant losses if you aren’t careful with your strategy. Thankfully, there are ways to minimize risk as an active intraday trader. 

Do Your Research

There’s much to understand regarding day trading and choosing which securities to buy or sell. You’ll need to analyze patterns, trends, and other market indicators for a specific stock before you buy or sell it. Staying tuned to these factors and keeping updated with the latest news about the securities you wish to trade can help you gain more profits and avoid losses. Thankfully, Scanz can automatically help you find the best trade opportunities with our proprietary market scanning technology.

Use Limit Orders to Cut Losses 

Is a trade not going the way you hoped it would? Cut your losses! You’ll want to use limit orders to enter and exit the trade. This type of order stops when the security has reached a maximum or minimum price. While this guarantees the stock’s price when sold, remember that a limit order won’t allow you to fill your order immediately.

Spend Only the Money You Can Afford to Lose

Even though you’ve done exhaustive research, some unknown factors will still affect the price of securities. In the worst-case scenario, you could lose a considerable chunk or all of your funds because of an unprecedented factor. Knowing this possibility, you should spend only what you can afford to lose. For example, if you have $20,000 in your trading account and are willing to risk only 0.5% of this amount, your maximum loss should be $1000. Make sure you always place limit orders to minimize your losses.

Start Small and Wait for Long-term Results

Don’t jump into the game expecting huge profits in your first few trades. This mindset is one common mistake of beginner traders, which can lead to impulsive decisions and losses. Instead, start small with just one or two securities in a session. This practice will allow you to get the hang of day trading.

There’s also the concept of fractional shares. Some brokers allow you to trade only a small amount of the stock, which is a less risky option for many. Fractional shares can also help you understand how much you could gain without the risk of losing too much.

Take Advantage of the Scanz Workstation

Scanz is one of the best tools at your disposal. Our workstation is a lightning-fast stock market scanner that helps you monitor live, market-moving activity. With Scanz, you have a real-time window that lets you peer into the stock market and take advantage of the best trade opportunities. Learn how it works and see the benefits by starting a risk free trial!

Although stock prices get a lot of attention, prices on their own aren’t all that informative. Investors need context about the number of shares and how they’re distributed in order to make trading decisions. This context is known as a stock’s share structure, and it includes a number of different components.

Today, we’ll take a closer look at share structure to show you how you can find it in Scanz and how you can put it to use when trading.

What is a Stock’s Share Structure?

Not every company has the same number of shares or distributes them to investors in the same way. That can have impacts for both a stock’s fundamental valuation and technical price movements.

So, a stock’s share structure is a set of metrics that, taken together, describes how a company’s shares are divvied up and issued to investors. There are several different components to share structure, and investors need to understand how these components work together to influence a stock’s trading patterns and value.

How to Identify a Stock’s Share Structure Using Scanz

You can find information about a stock’s share structure in Scanz using the Montage module. Search for the stock you want information about, then select the Fundamentals tab and then the Share Structure tab.

You can also scan for stocks with the Pro Scanner module using filters around share structure. These filters are available under Fundamentals > Share Structure.

If you are using the Easy Scanner, you can sort stocks by share structure components such as market cap and float.

Key Components of a Stock’s Share Structure

Let’s take a closer look at some of the metrics that are commonly used to define a stock’s share structure.

Authorized Shares

A company’s authorized shares is the total number of shares that it can ever issue, as laid out in the company’s articles of incorporation. Many large companies do not have a limit on the number of authorized shares that they can issue, since this could create problems for stock-based compensation or limit future funding options.

Outstanding Shares

The number of outstanding shares a company has is how many shares it has actually released to investors. Outstanding shares includes stock shares issued to early investors, shares released during an IPO or secondary offering, and vested shares that employees or insiders receive as part of stock-based compensation plans. The number of outstanding shares can change over time and is reduced when companies buy back their own stock.

Float

Float is similar to outstanding shares, except it only counts shares that are currently available for investors to trade. A company’s float may be less than its number of outstanding shares if there are restrictions on trading some shares, for example because of a lock-up period after an IPO or because of restrictions on how many shares company insiders can trade.

Market Cap

A company’s market capitalization, or market cap, is the total combined value of all its stock shares. In effect, it’s the total valuation of a publicly traded company. Market cap is calculated simply by multiplying the current share price by the number of outstanding shares.

% Held by Insiders

The percentage of outstanding shares held by company insiders – typically executives and board members – isn’t necessarily part of a company’s share structure. However, shares held by insiders aren’t frequently traded. So, it can be helpful to know if a large portion of a company’s float is tied up in insider-held shares that are largely kept off the market.

% Held by Institutions

The percentage of outstanding shares held by institutions is important to know about for the same reason as the percent of shares held by insiders. These shares are typically long-term holdings that are kept off the market. So, it the percent held by institutions is high, a stock’s effective float may be lower than its actual float.

What to Consider When Analyzing a Stock’s Share Structure

There are several ways that you can use information about a stock’s share structure to your advantage when trading.

Supply and Demand

First, knowing a stock’s float can be extremely useful. Stock prices fluctuate in response to supply and demand, and float provides information about share supply on the stock market.

If a stock has high float, it will take greater demand – in terms of trading volume – in order for that stock to appreciate in price. Low float stocks, on the other hand, can be very volatile because there are relatively few shares available to buy and sell.

Market Cap

Market cap is one of the most important metrics to look at when considering whether a stock is overvalued or undervalued. The stock price itself doesn’t tell you much, but market cap reflects the current public valuation of a company.

So, you can use market cap to decide whether a company’s current valuation is justified, and from there decide whether an individual share is overvalued or undervalued. Even technical traders should pay attention to market cap since highly overvalued or highly undervalued companies will eventually move back towards a more reasonable market cap.

Increases in Outstanding Shares

Companies can issue new outstanding shares, up to their number of authorized shares, through a secondary offering or employee stock compensation.

Traders should beware of companies that repeatedly issue new shares through secondary offerings. Every increase in the number of outstanding shares dilutes the value of existing shares since there are now more ownership shares of the same company. This kind of repeated dilution can hold a stock’s price back from appreciating.

Conclusion

Understanding a stock’s share structure is important to getting a holistic picture of a stock’s valuation and price movements. While share structure is often used by fundamental investors, it also has implications for technical traders. With Scanz, you can easily find a stock’s share structure and create stock screens using common share structure metrics.

What are market internals?

Market internals give us a peek “under the hood” of the market, if you will. From them we gleam insights into the market’s breadth. The S&P may be up on the day, but the market internals may tell a different story. It may be one sector driving the rally, while the majority of stocks are weak on the day.

Market internals are indexes using data derived from stock exchanges like the NYSE or NASDAQ, like the amount of NYSE stocks upticking vs. downticking on a minute to minute basis, or the amount of the stocks advancing in volume, vs. declining in volume, on a minute to minute basis. These internals can often serve as leading indicators, as you can see what the internals of the market’s engine are doing in real-time.

Volume Spread Difference – $VOLSPD or $UVOL-$DVOL

The Volume Spread Index shows the difference between volume on stocks advancing for the day, and volume on stocks declining for the day. This index is essentially made up of two tickers, $UVOL and $DVOL. On some charting platforms, like Thinkorswim, you can simply type “$UVOL-$DVOL” in the ticker box and get this index, while other platforms have their own ticker for it, like $VOLSPD.

This index is most useful on two time frames: a daily chart to see the trend of the last few days, and a short term intraday chart to see where the volume is moving in the next hour.

On the daily chart it is useful to plot a shorter term moving average, like a 10-day, and a zero line. If the moving average is above the zero line, more volume has generally been going into the advancing stocks over the last few days, signalling strength from the bulls.

On the intraday chart, a longer term moving average, like a 50-period, has more application as it gives you a perspective on the broad trend for the day.

NYSE TICK – $TICK

The NYSE $TICK Index only has application on a very short time frame. It is the ultimate pulse of the market on a second-to-second basis. Concisely, the $TICK measures on many stocks on the NYSE in that moment are upticking vs. downticking.

The $TICK’s reading are quoted in negative or positive numbers. For example, a reading of +400 means that in the last 6 seconds, 400 more stocks upticked than downticked on the NYSE.

Generally, the use of the $TICK index is to identify extremes in markets and fade them. Be careful though, in a strong trending market, trying to fade extremes is like trying to catch a falling knife. However, in a choppy market climate, fading extremes can be a very profitable strategy.

Another strategy used by some day traders is to use $TICK in strong trending markets. When they’ve identified a trending day, they will use high $TICK readings as a confirmation indicator, rather than trade divergences.

As more issues get added to the NYSE, the extreme readings change. At the time of writing, here are some extreme levels to take note of:

• 800

• 1000

• 1400

In the choppiest markets, 800 is an extreme reading, while in more volatile and trending markets, you’re better off using 1400 as a reference point. It helps to plot lines at the extreme levels to filter out a lot of noise.

Advance-Decline Difference – $ADD

The Advance Decline Ratio is the difference between advancing and declining stocks. Like the other internals mentioned earlier, this index also gives negative and positive readings. A reading of -400 means that 400 more stocks went down on the day than advanced on the day.

The main use of this is to gauge general stock market strength. For example, Apple and Microsoft make up roughly 7% of the S&P 500, if those two stocks rally while the rest of the stocks trade in a narrow range, the S&P will likely be up on the day. A few disproportionately weighted stocks on extended rallies can make the market look stronger than it really is if the rest of the stocks are not following suit. This is where the Advance Decline Ratio comes in. It measures either confirms the positive (or negative) action in the market, or there is a divergence between the two.

In the example below, you can see that $ADD confirms most price action from the S&P, that a few stocks aren’t driving the rallies or pullbacks.

The S&P 500 Volatility Index – The VIX

By far the most well known indicator in this article, the VIX is widely known as the “fear index” by most traders and investors. The VIX essentially projects out the expected volatility for the next 30 days, on an annualized basis. For example, if the VIX is at 20 right now, the market (based on it’s own activity) is projecting the next 30 days to have the volatility of 20%, on an annualized basis. Basically, when people are getting scared and buying insurance against their portfolio, the VIX goes up.

The VIX has a historically negative correlation with the S&P 500.

There are many ways to use the VIX as an indicator. The first one involves the VIX serving as a leading indicator the market. Essentially using it for convergence or divergence. As noted above, the VIX has a negative correlation with the market, so when the VIX spikes, the S&P is likely to follow with a sharp down move. Combining this with your other trading analysis is sure to improve your results.

The next effective use of the VIX is to take advantage of it’s mean reverting nature. If you’re familiar with options trading, one of the core tenants of premium sellers is that implied volatility is overstated. This fact is evidenced by models created by options trading/education firm Tastytrade in the below graph:

To sum up these findings, when implied volatility is high, it’s time to sell, as their is premium built into that high price, in other words, it’s a positive expectancy bet. Because the VIX is simply a measure of SPX’s implied volatility, one can use these volatility tendencies on the VIX.

Simply looking at a moving average (20-day) of the VIX over time, we can see volatility’s mean reverting nature in action.

Successful trading is all about being at the right place at the right time. More specifically, it’s about trading the right stocks at the right times.

Active traders don’t get attached to hot stock picks; they follow the momentum in the stock market. Some stocks may only present a few trading opportunities throughout the entire year, meaning day traders are constantly refreshing their watch lists.

Day traders may be stalking a particular setup for months before it comes to fruition. If you’re taking a manual approach to this process, you’re wasting plenty of precious trading hours. Staring at a screen waiting for the perfect setup is inefficient and unnecessary. Today, we’re going to discuss how you can set trade alerts to save time and catch more trading opportunities.

What is a Trading Alert?

A trading alert provides you with a notification when a certain set of criteria has been triggered. In EquityFeed, you can set audio alerts, popup alerts, and email alerts.

These alerts can be set for a few different scenarios, including:

• Price changes (i.e. stock hits $X price)
• Percentage changes (i.e. stock is up over 10%)
• Volume changes (i.e stock volume is over 10 million)
• News (i.e. a company releases news or filings)
• And more!

Trade alerts help you stay on top of your trades without having to stare at a screen or flip through hundreds of stocks on a watch list.

Benefits of Trade Alerts

There are a few key benefits to setting trade alerts.

Avoid Missing out on a Trade

The first benefit is straightforward; trade alerts help you avoid missing out on a trade. If you’ve been waiting for months for stock $XYZ to break out above $120, the last thing you want to do is miss the move because the stock fell of your radar. If you set an alert, you can ensure you’ll be ready to take action when the stock starts to break out.

Create Smaller Watch Lists 

Successful traders know that “less is more.” If you focus on less stocks, you can give each stock more of your attention, which may lead to more favorable trade outcomes. That said, many new traders get carried away with FOMO (fear of missing out) and create long watch lists. They don’t want to miss a move, so they make sure they are watching as many stocks as possible.

As mentioned above, this approach is counterintuitive to your success as a trader. You’re better off keeping your watch lists simple and setting trading alerts for the other setups.

For example, assume stock $XYZ is trading at $110 and you’ve been watching it for the past two weeks, waiting for it to break above its 52-week high at $125. You’d be better off setting a price alert and shifting your focus to better short-term opportunities.

Track More Setups

Trading alerts can also help you track more setups overall. We’re all human and our attention is limited. We can only focus on so many stocks at one time. If you’ve been trading for a while, you’ve undoubtedly missed out on an opportunity because a stock fell of your radar.

With trading alerts, you can stay on top of all of your setups. Just load up your alerts, and let the platform do the rest of the work for you.

Stay Up to Date on Company News

It’s important for traders to stay up to date on news that may affect the stocks they are trading. If you have a position in a stock (or it’s on your watch list), you’ll want to know if the company reports any significant updates. It can be tedious to scroll through news stories from hundreds of different stocks. Trade alerts can simplify the process.

Simply set up news and/or filings alerts for any ticker and you’ll never miss an update again.

Setting Trade Alerts in EquityFeed

Setting trade alerts in EquityFeed is simple.

Start by navigating to the Personal Alerts tool.

You’ll find sections for both Trade Alerts and News Alerts.

Setting Up a Trade Alert

1. Enter a ticker
2. Choose which type of alert you’d like to set
3. Add any additional comments
4. Choose your notification type
5. Add to your alerts list

Setting Up a News Alert

1. Enter a ticker
2. Choose which type of news your interested in
3. Add any additional comments
4. Choose your notification type
5. Add to your alerts list

Investors and traders tend to make their decisions based on two schools of thought within securities finance: fundamental analysis and technical analysis. Boiled down to it’s simplest, fundamental analysis deals with the value of a company/security, and the many facets that come with it. Technical analysis, on the other hand, doesn’t deal with any tangible fundamental data, rather, it deals with market data like historical prices. The two schools of thought also diverge when it comes to time frame, technical analysis often focuses on the shorter term, while fundamental analysis generally focuses on a much longer term view.

Within fundamental analysis, there are two main schools of thought: value and growth.

Value Investing

Value investors look for companies trading below their long term average valuation metrics, like low price-to-earnings ratios relative to the company’s industry. They look for good companies that will last many market cycles trading at “inexpensive” levels. Value investors, at their core, are deeply contrarian, they buy assets out of favor with the market hoping the market eventually comes to their senses. They tend to have a longer timeframe than the average investor, hoping to own a stock until given a reason not to, they’d prefer to hold a stock forever if they could.

A key difference between value investing and other investment strategies is the lack of faith in projections. They put little importance on a company’s growth projections, they prefer to view companies as they are today, putting little to no premium on the company for optimistic projections.

Value investors tend to look at risk differently than the rest of the securities industry. They generally don’t use risk parameters like Modern Portfolio Theory often employed by large institutions, nor do they favor a wide diversification of assets, preferring to instead focus their capital on a select few high conviction investments.

The industries value investors choose to invest in are usually age-old industries with easy to understand business models and solid financials. Generally, they avoid “the next big thing,” as these companies seldom have a sustainable business model, with their investors instead betting on the company’s and industry’s growth figuring out the financial incompatibilities along the way. For example, Warren Buffett famously avoided the dot-com bubble of the late 1990s because he didn’t understand the industry, choosing to stick to the industries he knew best, like food & beverage and insurance.

Within the value investing world, there’s a number of thought leaders with divergent views on minor factors but, they tend to mostly agree philosophically. Some high profile value investors are Warren Buffett, Charlie Munger, Seth Klarman, Ben Graham, and David Dodd.

Key texts to read if interested in value philosophy are:

• The Intelligent Investor by Benjamin Graham
• Security Analysis by Benjamin Graham and David Dodd
• The Warren Buffett Way by Robert Hagstrom
• Margin of Safety by Seth Klarman

Growth Investing

Growth investors, on the other hand, discount traditional value investment principles. Rather than looking for “inexpensive” stocks, most stocks they buy are trading at high valuations. In contrast to value investors, they place little importance on the the company’s valuation and financials today, effectively placing a bet that the company will grow exponentially.

Growth investors have their own metrics they pay attention to. The same way P/E ratio is the stereotypical ratio used by value investors, earnings growth is the most important metric to growth investors. They like to see an upward trend of improving earnings, in addition to stronger forward earnings projections.

Growth investors tend to take the view that if a company is trading below their industry P/E average, it’s because the market doesn’t believe the company’s earnings are worth the industry average, and that they may be on the decline. Growth investors don’t believe in “inexpensive” stocks. They view valuation ratios like P/E and price-to-book as a measure of how much the market is willing to pay for that company. In their eyes, companies with higher readings of these metrics are higher quality companies that are more likely to grow and outperform the market.

Some popular growth investors are Philip A. Fisher, William J. O’Neil, and Peter Lynch. Key texts about growth investing are:

• Common Stocks and Uncommon Profits by Philip A. Fisher
• How to Make Money in Stocks by William J. O’Neil
• One Up On Wall Street by Peter Lynch
• Beat The Street by Peter Lynch

Top-Down vs. Bottom-Up

In addition to the vast array of fundamental investment strategies (most falling into the growth or value camp in some way), there are different orders in which to approach markets. Some investors choose to start at the top, looking at the economy and broad stock market, gradually moving down, while others start from individual stocks and move up from there.

Top-Down Approach

A top down approach, often referred to as a “30,000 foot view” is starting by looking at the most broad aspects of the markets. This generally involves by beginning with identifying which position the economy is in the business cycle, which stock market stage we are in, macro factors that could lead to a bubble or a crash, which sectors are expanding and which are contracting, things of that nature. Once the investor has formed a view on the economy/broad market, they will then move down a step to narrow their choice of investments. For example, if one examined the current market climate and observed massive risk in student loans and pensions, they could choose industries safe-guarded from these crises. Conversely, they could choose to short industries most affected by it.

The main factor differentiating top-down from bottom-up is the lack of bias towards any specific security. They form a broad view on the market and choose appropriate securities to express that view.

Bottom-Up Approach

Bottom-up analysis involves starting from a specific stock/security and analyzing the fundamentals of it before even looking at it’s industry, sector, or market climate. Often times, macro factors like the broad market and the stock’s sector are but an afterthought to the bottom-up investor. This approach is generally favored by value investors like Warren Buffett. The rationale is that a great company will perform well regardless if it’s industry or the market is on a decline. Bottom-up investors generally have a longer time horizon than top-down investors, as well as a more focused basket of stocks that they choose to get a deep understanding of, in contrast to top-down investors who regard individual companies as less important and would prefer to use companies to expose their portfolio to certain industries/sectors.

You can look at top-down investing as a macroeconomic approach, and bottom-up investing as a microeconomic approach.

Using Fundamentals in Trading

The prevailing view is that fundamentals only have utility in longer term investing. This is partly true, as fundamentals rarely change over short time periods, and are usually priced into the stock shortly after becoming public information. For this reason, most traders are encouraged to ignore a stock’s fundamentals when trading it, which I believe is a mistake.

Fundamentals, on any time frame, have an influence on how a stock is traded. It stands to reason that a stock with great growth and margins in a strong, growing industry would be coveted by the investing public, while a contracting, capital-intensive company in a dying industry would be a candidate for short sellers.

Even on a micro time frame like a 5 minute chart, there are still investors making decisions about the stock, which the fundamentals strongly influence.

Shareholder Sentiment

In addition to fundamentals being key to theorizing how new participants in the stock may behave, it also gives you insight on the sentiment of the current shareholders. Shareholders in a growing company with great financials are probably feeling more bullish with each passing day, while shareholders in a failing company may just be looking for the best price to sell at, with no intention to hold long term.

A new high in a growing company that has been producing above-market returns for their shareholders will have drastically different psychological effects on its shareholders than a new high in a failing company. While the new high for the growing company may give the shareholders confidence to add to their positions, the new high for the failing company may spur strong selling from unhappy shareholders who are just happy to get out at a decent price. This is how you can use fundamentals to predict support and resistance levels.

This concept is similar to gauging the sentiment of shareholders in technical analysis. Technicians often theorize that resistance in a downtrending stock is stronger than in an uptrending stock. The positions of the shareholders in the downtrending stock have likely been in the red for a while, and the resistance point looks like a good price to get out of the stock. One can use the fundamentals of a company to predict this sort of reaction before visible price levels form.

Getting an Edge in Breakout Trading

In addition to gauging shareholder sentiment, knowing the fundamentals of a stock can help forecast the probability of a breakout trade’s success.

Like mentioned earlier, the psychology of a breakout differs from stock to stock. Even in an uptrending stock, one cannot be sure of the long term shareholder’s psychology. Because most long term investors use fundamental analysis, if an uptrending stock has weak fundamentals, shareholders may view a new high as a good point to sell their shares. For this reason, knowing key fundamental data points will give you a huge edge over most technical breakout traders.

Using a simple growth stock filter like William O’Neil’s CANSLIM when trading breakouts can not only improve your probability, but it can also put you aboard some of the strongest runaway trends the market has to offer. By putting both technicals and fundamentals in your favor, you can reduce the amount of “fakeouts” you trade.

Here is an overview of O’Neil’s CANSLIM model:

• C: Current quarterly earnings per share (EPS)
• A: Annual earnings trending over five years
• N: New highs in stock, new products in company’s pipeline, or a new business model
• S: Supply and Demand (stock buybacks, low float)
• L: Leader in it’s industry
• I: Institutional sponsorship
• M: Market direction (S&P, Dow, NASDAQ in uptrends)

Boiled down to it’s simplest, CANSLIM looks for a stock with an upwards earning trend that is a leader in it’s industry. Once a stock fulfilling these parameters hits a new high, it’s a candidate for a breakout trade.

Data Points to Look At

In addition to looking at a model like CANSLIM, there are a few individual data points that are vital to the trader seeking to use fundamentals to improve the probabilities of his short term trades.

Earnings Per Share (EPS)

Earnings are the most important factor of a stock price, and they drive the stock market. The term “earnings” refer to the net income of a company, or the amount of after-tax, after-operations, total profit a company earns.

Imagine running a small business, what do you care more about, how much you produce in sales, or how much money you can actually take home at the end of the day, after costs like taxes, operations, and paying your employees?

Operating Margins

A company’s operating margins tells you how much revenue it actually gets to keep, after operations and costs.

For example, McDonalds (MCD) had operating margins of 31% for the fiscal year of 2016, meaning for every dollar in sales, they made 31 cents of profits.

Operating margins give you insight into a company’s efficiency. Companies with very low margins are capital-intensive, meaning they require a lot of capital only to produce minimal profits. Additionally, companies with low margins are a few bad deals away from not being profitable at all, as increased costs may erode the small profits the company is currently producing.

While it is great to look for a company with excellent margins, the most important aspect for traders when observing margins is the trend. Regardless if the company’s margins are 4%, or 40%, the key to a stock price increase is improving margins. A stock with poor, but improving margins will likely perform better than the stock with great, but deteriorating margins.

Price to Earnings Ratio (P/E)

Price to earnings ratio is the most popular valuation measure used by investors. It is found by dividing the stock price by it’s earnings per share (EPS).

Old school value investors used P/E to determine whether a stock is “inexpensive.” While this may be fruitful for the long term investor, it serves little to the shorter term trader. Instead, a trader should look at a stock’s P/E as a sentiment indicator.

• A high P/E ratio indicates the market is bullish on the stock’s future earnings. The market predicts the earnings will grow.
  • A bearish report on the earnings guidance (company’s forecasted earnings) will drastically affect the stock price, as investors are paying a high P/E in anticipation of improving earnings.
• A low P/E ratio indicates the market is bearish on the stock’s future earnings. Depending on how low the P/E ratio is, the market may be pricing in a decline or stagnation in future earnings.
  • A bullish report on earnings guidance can bring this stock back into growth territory, and the market may be ready to pay higher multiple.

Take note of the cumulative P/E ratio of the stock market when evaluating the P/E of a stock. The market’s P/E can act as a reference point as to whether a P/E is “cheap” or “expensive”

Summary

Fundamental analysis is a widely encompassing field, including the most traditional of investment strategy to the most complicated quantitative models. Classifying fundamental analysis philosophy as either value-focused or growth-focused is an over-simplification but, one will find that the vast majority of investment strategies fall into these two camps in one way or another. The key difference is viewing a company as it is today, versus viewing a company as what it can be tomorrow.

A working knowledge of fundamental analysis is important, even for the shortest term of traders. It may seem ridiculous for an order flow scalper to spend any time on fundamental analysis but it can give one context as to how a stock may react to an earnings play or breaking news.

This article doesn’t begin to scratch the surface of fundamental analysis. The trader/investor who take this field of analysis seriously has an array of fields to research including corporate finance, business strategy, macroeconomics, investment banking, and various others.

What is extended hours trading?

Extended hours trading are time intervals outside of regular trading hours where trading still takes place. Volume is usually inconsequential and the vast majority of time, nothing of significance takes place. They’re simply available for convenience and the ability to react when that rare catalyst strikes.

Although conventional wisdom tells you that the stock market opens at 9:30 AM EST, you can actually trade as early as 6 AM. Though, many retail brokers only allow pre-market trading starting at 7 or 8 AM. After market hours starts as soon as the market closes at 4 PM, and goes until 8 PM. Again, many brokers cut off their extended hours at around 6:30 PM. It varies from broker to broker, so make sure you consult with your broker if you plan to trade during these hours.

Why does extended hours trading exist?

Extended hours trading became a necessity as financial markets became globalized and the world became more interconnected. The rest of the world does not live on United States Eastern Time and a lot happens outside of regular market hours. Extended hours give traders a chance to react to these events in real time.

The main benefit of extended trading hours is the fact that earnings reports and calls are done during pre-market and after hours trading. Extended hours gives traders a chance to speculate on earnings in real time, and even trade in reaction to statements made by executives on the earnings call.

Trading during extended hours

There was a time, not so long ago, that extended hours trading was restricted to all but institutional investors and a select few high net worth investors. The advent of electronic trading has granted the opportunity to all investors to trade during extended hours, for better or worse.

That being said, to this day it is still a very difficult endeavor and advised against save for specific situations. Here are a few reasons it’s not recommended that you trade during extended hours:

Limited quote choice

Most retail brokers do not allow you to interact with the same liquidity that you do during regular trading hours. Typically, they will route it through their in-house market maker, or have a very select few ECNs. You may have seen this in action if you had an order sitting on the book after-hours and saw multiple orders executed at worse prices than yours, yet your order is still untouched.

No liquidity

Liquidity is perhaps the most important aspect to trading. You can have billions in unrealized profits but if there’s nobody to take the other side of your trade, you may as well have nothing. Unless there is a catalyst like earnings or breaking news, most stocks trade very thinly during extended hours and you can’t quickly move in and out of them.

No price movement

During the average stock’s extended hours session, the price trades in an extremely narrow range with no real direction to the price movement. Generally, the best that one can hope for is a scalp, which is like betting three for a possibility of one. Factoring in transaction costs and the illiquidity of extended hours trading, attempting to scalp is a negative expectancy game.

Huge spreads

Nowadays, save for micro and small cap stocks, most spreads are a penny wide. We’ve gotten so greedy with these liquid markets that we think paying the bid/ask spread isn’t a thing to fret about. That is, until you look at extended hours quotes. Welcome back, 50 cent spreads.

It’s not the highest and best use of your capital

It’s amazing how some traders are willing to use so much of their capital for such small returns in shoddy trade ideas. Just wait until tomorrow, there will be thousands of highly liquid stocks with directional price movement. Why mess around with illiquid, range-bound stocks? Insisting on trading in illiquid extended hours markets is akin to a trader being emotionally attached to trading the stock of his favorite company.

With that being said, sometimes there is legitimate reason to trade during extended hours if the proper precautions are taken. There are various situations that would lead to an extended hours catalyst. Here is an outline of the most typical:

Earnings reports

By far the most common, almost every stock market earnings report takes place during extended hours. These reports often lead to extreme volatility as they are viewed by many as somewhat binary in nature. “Good or bad” is the prevailing question. Statements by the company’s executives during the call are being received as bullish for some, bearish for others. Earnings are a favorite for sentiment traders.

Acquisition announcement

When a company announces a deal to acquire another company, any stocks involved in the deal are going to see considerable activity. An example is Intel’s acquisition of Mobileye. It was announced in pre-market, and the stock jumped from the 40s to the 60s.

Rumors

A rumor in the higher end of the financial media holds a lot of weight. An article in the Motley Fool means little, but when CNBC and Bloomberg are talking about it, price will react accordingly. Rumors are regularly announced during extended hours. Consider the situation with the stock of TV subscription service Starz, and their extended hours acquisition rumor.

Breaking news

Whether a fund manager like Bill Ackman or Jim Chanos is announcing their next big short, or a company’s CEO is arrested, all types of crazy things happen during extended hours.

Gap ups

During pre-market, there are always stocks gapping up and this is a part of many traders’ strategies. If you have a robust gap trading system, then it would be appropriate to trade gaps during extended hours. However, if this is not your bread and butter, steer clear.

Here are a few best practices if you decide to take extended hours trades:

Catalysts

Never trade during extended hours unless there is a catalyst justifying so. Even if the stock is moving, if you don’t know why, stay away from it. Whether its earnings, news, or Jim Cramer pumping the stock on Mad Money, know why you are trading the stock. From a day trading perspective, this is unusual, as day traders generally know little about the stocks they trade. Extended hours is a different beast altogether.

There must be liquidity

You must be able to swiftly trade in and out of the market without considerable slippage. If this is not achievable, stay away.

Scale in

If you are taking a day trade during extended hours, consider scaling into your position. Imagine extended hours trading as walking on a slightly frozen lake in early March, and regular hours trading as walking on a professional ice hockey rink. At any given time, the ice can crack, and it’s better to have one leg on land when that happens.

Adding/scaling into a position

If you are accumulating or adding to a position for a longer term swing trade, extended hours orders are okay. Try to resist the temptation to move your order around. Set an order and forget about it. The choppiness of extended hours will lead you to buying at an unreasonable price if you chase.

Conclusion

Consider that there’s a reason most traders and institutions stay away from extended hours trading. Remember to always stay in your lane. Generally, it simply is not worth your time or capital to trade during extended hours. However, it is worth it to train and study for those moments when it is, because the gains can be enormous, and because not studying and being disciplined will lead to enormous losses during extended hours trading.

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Efficiency is one of the most important traits of a successful day trader. The word “efficient” is defined as, “achieving maximum productivity with minimum wasted effort or expense.” Time is money, and you want to make the most of it. You want to make sure your trading activity makes the most of both your time and your money.

In trading, efficiency can entail a variety of ranging from a shift in focus to a change in behavior. Your goal is to make the most money with the least amount of work (and stress). Here are some tips to get you started.

1. Scan at Night

You should come to market every day with a game plan. Don’t expect to flip on your computer screens at 9:30AM and have the trades come to you. You need to scan the night before, create a watch list, and prepare to execute your trading plan the next day.

2. Wake Up Early and Check Pre-Market Data

Waking up early serves two purposes. First, it gives you time to wake up and take care of your morning routine before you start trading. Second, it allows you to analyze pre-market trading activity. You can see how broader markets are performing, check for company news, and analyze pre-market trades. This will help you solidify and/or reformulate the plan you created the night before.

3. Keep your Watch Lists Short

If you’re watching 20+ stocks, you’re going to get overwhelmed. Even the best multi-taskers can’t devote the proper attention to a large watch list. Focus on creating smaller watch lists of 5-10 stocks. As you analyze early morning trading activity, you may be able to narrow this list down to less than 5. This allows you to stay focused and give each trade the attention it deserves.

4. Use Multiple Watch Lists

Many traders create big watch lists because they don’t want to miss out on a trade. If this is the case, you can create multiple watch lists and flip through them. Better yet, you can create watch list scans to alert you of any significant activity from these stocks. You may create separate watch lists based on timeframe, stock price, sector, etc.

5. Limit Your Indicators

Relying on too many indicators will lead to information overload and, ultimately, decision fatigue. You should only be using the indicators that help you make decisions. For example, you may find that the VWAP indicator is helpful for gauging risk, but the 5, 10, and 20-period moving averages are not.

6. Create a Positive Environment

Your physical environment will have an impact on your mindset and, consequently, your trading. While you may not pay much attention to your environment, it can still have subconscious effects. Keep your desk clean, eliminate distractions, and do whatever is necessary to facilitate an environment that is conducive to your trading success.

7. Avoid Distractions

Trading is difficult enough as-is. The last thing you need is to be distracted. Do your best to eliminate distractions. For example, if you know that browsing social media distracts you, stay off of social media sites during trading hours. If you know you have an appointment during the middle of the trading day, consider avoiding trades that you’d need to hold through the appointment.

8. Don’t Overthink Your Trades

It’s important to remember that there is a big difference between planning and overthinking. Planning represents diligence whereas overthinking represents indecision.

Create a plan and do what you said you were going to do. Don’t question your judgment after the fact and don’t try to account for every scenario. Any time you find yourself hesitating, it can usually be attributed to a lack of planning.

9. Take Away Lessons, Not Regrets

Here’s a little trading secret – NO trader has a 100% win rate. Every trader takes losses, regardless of their experience. It’s impossible to be right all of the time. Perfection is an aspiration, not a destination. Allow yourself room for failure.

Instead of regretting your losses, learn to take away a lesson. Regret gets you nowhere, whereas lessons will help you improve your trading.

10. Get The Right Tools

Most traders can’t even imagine the thought of trading without their charts and level 2 screens. If you want to give yourself the best shot at trading success, you need to be equipped with the proper tools. Luckily, in this new-age of technology, almost every tool you need is available.

Make sure you have access to quality scanners, charting tools, level 2 platforms, etc.

11. Know Your Limits

When possible, trade within your comfort zone. Leaving your your comfort zone causes you to trade emotionally and irrationally. This isn’t to say you shouldn’t challenge yourself BUT if you constantly find yourself in uncomfortable positions, you need to learn your limits.

Your limits may include certain position sizes, certain sectors, certain trade setups, etc. For example, if you’re not comfortable short selling, focus on long trades. If you are trying to expand your horizons, ease your way in so you can learn a new skillset.

12. Let the Trades Come to You

When you’re staring at a screen for 8+ hours a day, it can be tempting to place a trade just for the sake of remaining active. Considering every trade has the potential for losses, this isn’t your best move. Let the trades come to you. If there are no good setups on a given day, wait for the next day. It’s better to end the day flat than negative.

13. Avoid Averaging Down

One of the worst ways to try to rectify a situation is by repeating the exact behavior that got you into the mess. You can’t fight fire with fire.

Traders often see “averaging down” as a way of hedging their risk and increasing their potential upside. In reality, this is a great way to stack your losses and cause unnecessary damage to your trading account. If a trade goes against you, take the loss and move on.

14. Disconnect from Your Capital

If you want to stand a chance in the world of trading, you need to disconnect from your capital. Think of your capital as numbers instead of money. This helps you make intelligent, rational decisions instead of emotional ones. For example, if you realize that loss you just took was about the price of your rent, you might mishandle your position.

Of course, you also shouldn’t trade with money you can’t afford to lose.

15. Get in the Habit of Doing Research

We live in one of the best eras to be a day trader. The answers to 99% of your questions are at your fingertips. Don’ t know what the MACD indicator is? Google it. Don’t know what a trailing stop loss order is? Google it.

Get in the habit of doing research whenever you are faced with the unknown. Over time, this habit will help you become a more educated and knowledgeable trader. If you learn five new things every week, imagine where you’ll be at the end of the year.

16. Stick to a Niche

Sticking to a niche in the stock market helps you find consistency and improve your profitability. Let’s use a sports analogy to illustrate this concept. Assume you had to take 100 shots on a basketball court. Do you think you would make more shots if you took them all from the same spot or random spots across the court? Clearly, you would make more if you took them all from the same spot. Repetition and focus help you improve your skillset. This same logic applies to day trading.

When you stick to a niche, you narrow your focus, become more familiar with your setups, and learn much faster. Ultimately, this will lead to higher consistency and profitability.

Day trading is one of the few jobs that provides infinite profit potential. There is no cap on the amount of money you can make if you continue to grow your account. Making $50,000 per year? Take it to $100,000. Making $1 million per year? Step it up and hit $10 million!

Mastery is a myth. Regardless of how skilled or profitable you are, there is always a next level. If you want to reach new levels and set new milestones, you need to record and analyze your progress. The best way to do this is by logging your trading activity in a trading journal.

What is a Trading Journal?

A trading journal is a log of all of your recent trades. Generally, a trading journal will include relevant data such as entries, exits, position sizing, trade rationale, etc. For example, a journal entry may look like:

There is no universal format for a trading journal. You can keep a physical journal, a Word Document or Excel Spreadsheet, or utilize an online trade analysis software. Choose whichever option fits your needs.

Why You Should be Keeping a Trading Journal

Many traders want to focus solely on the exciting parts of trading. Sniping trade setups is far more appealing than introspection and trade analysis. That said, analyzing your trading behavior provides a variety of benefits.

Collect Data

Having access to the right data puts you in an advantageous position. When you keep a trading journal, you are building a database full of valuable information. This data can be applied in a variety of ways as you advance in your trading career.

Pinpoint Strengths and Weaknesses

Often times, we’re blind to our own strengths and weaknesses. We may discount our strengths and ignore our weaknesses. This is a hindrance in our day-to-day lives, and even more so in trading when real money is on the line.

While we may be blind to our own strengths and weaknesses, data doesn’t lie. For example, if you notice that 80% of your short trades result in a loss and 70% of your long trades result in a profit, it would be hard to refute the fact that you’re better at long trades. This type of information can help you reshape your trading strategy to play off your strengths.

Hold Yourself Accountable

All traders are susceptible to emotional influence. Traders should aim to replace emotional influence with reason and logic. Keeping a trading journal can often be the key to this robotic trading approach. When you record a trading journal, you are holding yourself responsible. You have to explain all of your trades to yourself, so you better have good rationale. For example, you may not want to log a trade that you entered because “everyone on Twitter was talking about it,” whereas you may feel comfortable entering a trade based on a news catalyst.

Avoid Future Mistakes

The ultimate goal of logging your trades is to help you improve your results. This includes profit maximization and loss minimization. Small changes can have profound impacts on your net profitability. For example, lf you have $1000 in losses every month and you minimize the losses by only 10%, you will save $1200 over the year.

Keeping a trading journal helps you identify what NOT to do in the future. Over time, this will help you minimize your losses and shift your attention to the most profitable areas of your trading strategy.

Track Your Growth as a Trader

As mentioned earlier, we often discount our strengths. Similarly, we often minimize our progress as we work towards a big goal. While it’s good to stay focused on your end goal, its important to appreciate the milestones along the way. Keeping a trading journal allows you to track your growth and analyze your progress. This allows you to stay motivated and recognize the positive changes you’ve made to your trading strategy.

Components of a Good Trading Journal

Hopefully you’re sold on the idea of keeping a trading journal by now. The next step is getting started. So, what should you include?

There are two parts to the answer. First, you should include some key information that we will discuss below. Second, you should feel free to include any information that is relevant to you.

It’s also important to note that you can choose to create journal entries in real-time or after the trade. When possible, real-time entries are preferred as they will generally be more insightful than a future analysis.

Let’s get started with the key components.

Order Entry Information

Start by recording the basic order entry information such as the ticker, position size, date & time, and entry price.

Order Exit Plan

Next, record your plan for trade management. What happens after you’ve entered your position? When will you exit if your profitable and what is your stop loss? If you can answer these questions, trade management will be a breeze. You know exactly when you plan to sell regardless of how the trade pans out.

Trade Plan

The trade plan is one of the most important parts of a trading journal. It’s also the only qualitative piece of data you will be recording, so you can record as much or as little as you’d like. Your goal is to answer the question, “Why did I enter this trade?” Remember, you have to answer to yourself later so make sure to record a good response. Here are some examples of good and bad trade plans:

• GOOD: Stock was reacting to a news catalyst. I was able to initiate a position with a 4:1 risk/reward ratio and momentum was in my favor.

• BAD: I saw the stock running and I wanted to make sure I got in before it was too late.

Trade Outcome

How did the trade play out? Mark whether it was a win or a loss and enter the total profit or loss.

Additional Comments

Most of us tend to avoid “additional comments” fields. That said, your trading journal isn’t an online survey – it’s a personal tool. Adding additional comments can be insightful in the future. For example, you may mention that you had to be at an appointment 30 minutes after entering the trade so you mismanaged your position. In the future, you would know its better to avoid trading when you have other obligations.

Other Considerations

Your trading journal is your own personal tool; you make the rules. Consider logging any information that is relevant to you. Trading during work vs. trading at-home may be irrelevant to some traders and highly influential to others.

Of course, like any data set, you want to keep it relevant. If wearing a red shirt didn’t impact your trading, keep it out of the journal. Here are some possible considerations:

• Trading Environment (i.e. work, home, laptop, desktop, etc.)
• Type of Stock (i.e. penny stock, NASDAQ,, biotech, etc.)
• Timeframe (i.e. scalp trade, day trade, swing trade, etc.)
• Broker Used (If your commissions are adding up)
• Chart Pattern (i.e. bull flag, wedge, triangle pattern, etc.)
• Mood (i.e. tired, frustrated, energized, etc.)

Free Trading Journal

You’re officially ready to start your first trading journal! We’ve included this free trading journal to help you out along the way. Fill them out on the computer or print them out to keep on your desk.

If you have any trading journal tips, share them in the comments!

Often times, it’s the little life lessons that have the biggest impact. A simple piece of advice from a friend or family member can have a stronger impact than ten self-help books combined. It’s a lot easier to apply a concept such as “treat others how you’d like to be treated,” than it is to memorize a book on ethics. In order for advice to be beneficial, it needs to be actionable and memorable. The same logic applies to day trading lessons.

Trading is complicated enough as is. You can read a stack of books on trading theory, watch countless YouTube videos, and enroll in premium courses only to find out that nothing is having an effect on your bottom line.

You’ll hear many successful traders attribute their success to a single “aha moment” or words of advice they received from other traders. It’s a lot easier to absorb and apply these “micro-lessons” than it is to take action on a book full of theory. In the spirit of keeping things simple, let’s get right to it.

This post is an ode to simplicity. Hopefully, a few of these ideas will stick!

Here are 25 simple trading lessons that all traders should commit to memory.

1.    Learn First, Trade Second

New traders are always excited to jump into action. When you’re putting your hard earned money on the line, it’s important to make sure you’re equipped with a strong foundation. Learn the ins and outs of the market and test yourself with paper trading before entering the big leagues

2.    Create Trading Rules

Trading rules help you simplify your approach to trading and keep yourself inline. Create trading rules that help you decide which type of trades to pursue and which type of trades to avoid.

3.    Follow Your Trading Rules

Creating your trading rules is the first step; following them is the second step. This seems obvious, but this is where many traders get in trouble. Create rules and follow them.

4.    Become Self-Sufficient

Many new traders come to the market looking for mentorship and guidance. It’s okay to learn from others but your ultimate goal should be self-sufficiency. Make sure your daily actions are in line with this goal.

5.    Keep it Simple

Simplification is a powerful tool for traders. Being able to take complex data and simplify is a skill that will pay dividends for years to come. Focus on keeping things simple in all aspects of trading. This may include your charts, the setups you look for, and the tools you use.

6.    Focus on Efficiency

Efficiency and simplicity go hand in hand in the stock market. Efficiency means you are making the most of your time spent so you can be as productive as possible. If you’re staring at the screens eight hours a day to make $50 in profits, you may not be operating as efficiently as possible.

7.    Limit Losses

Nobody likes losing. Unfortunately, losing is a part of life and a part of trading. The best traders take their losses and move on. If you keep your losses manageable, you can come away with lessons that will help you improve as a trader. If you let your losses grow, you risk taking yourself out of the game.

8.    Learn from Losses

Losses are the cost of doing business as a trader. Fortunately, like any business expense, losses provide something in return. Use your losses as lessons to help you create new trading rules and improve your strategy.

9.    Stick to a Niche

Here’s a little secret: no one has mastered the entire market. Successful traders find areas of strength and capitalize on them. Instead of trying to catch every trade, focus on developing a niche and honing in on it.

10. Don’t Get Greedy

Greed is one of the most detrimental emotions in trading (consider it a deadly sin). Like many emotions, greed can cause you to act irrationally. This may cause you to take inflated position sizes or turn a winning trade into a loser. Let your strategy and trade plan guide you and avoid getting greedy.

11. Get Used to Doing Nothing

“Do nothing? What kind of advice as this?”

As counterintuitive as it may seem, sometimes doing nothing is the most strategic move. Day traders are hunting for prime trading setups. If there the setups don’t show, there’s no reason to pull the trigger. Get comfortable with the fact that you may not trade for hours or days at a time.

12. Be Prepared

If you want to make it as a trader, get used to planning everything. You need to come to the market with a game plan every single day. While you cannot account for everything, a proactive approach beats a reactive approach in most cases.

13. Be Patient

Coming to the market prepared is the first step. The next step is remaining patient as you wait for your setups to pan out. Be patient when waiting for setups to form and planning your entries and exits. This will allow you to become a more disciplines (and, ultimately, profitable) trader.

14. Have Realistic Expectations

You’ve probably seen a variety of advertisements for gurus who claim you can make thousands of dollars trading a couple hours a day.

Spoiler alert: it’s not going to happen.

Trading requires hard work and practice. If you come to the market expecting to make millions, you’re going to be disappointed. Set realistic goals and focus on growing at your own pace.

15. Small Wins Add Up

Trading is a strategic long-term game. Like most sports games, it’s the little wins that add up over time. The majority of points scored in most basketball come from 2-point shots. The same strategy should be applied to trading.

Let your wins add up instead of trying to sink a half-court shot.

16. Make Sure You’re Properly Equipped

There are “tools of the trade” in every profession. Make sure you show up to work properly equipped. Traders need access to the right brokers, platforms, and data if they want to be successful.

17. Don’t Trade Under Duress

The “mental game” is a big part of trading. If you’re not in the right frame of mind, consider avoiding the markets. Trading under periods of stress can cause you to make irrational decisions that can cost you in the long run.

18. Avoid Vengeance Trading

There is only one good reason to place a trade: you see a setup and you have a plan. You should never trade because you need money or want to avenge a loss. Many traders get into trouble because they try to make back what they lost on a previous trade. This can cause you to ignore your core strategy and make poor decisions.

19. Assess Your Own Behavior

You’re your own boss as a day trader. Consequently, you may need to play the role of the “boss” from time to time. Analyze your own behaviors and trading patterns and look for areas of improvement. If you’re honest with yourself, this type of introspection and self-awareness can take your trading to the next level.

20. Ignore Hype and Cynicism

Your trades should be based on your plan and your plan alone. It’s easy to get wrapped up in what other people are saying on Twitter, message boards, and CNBC. The fact is, no one has 100% certainty in the markets and if you plan properly, your hypothesis is as valid as any other.

21. Plan for Success

A trade doesn’t end up in the win column until the profits are realized. It’s important to have a game plan for how you will exit trades when they go in your favor. Know when you will take profits and why. This will help you avoid getting greedy and ruining an otherwise successful trade.

22. Plan for Failure

Losses happen. You can’t control a stock’s price action but you can control your own actions. Have a plan for how you will react if a trade goes against you. There are ways to take losses gracefully and there are ways to turn them into disasters. Strive for the former of the two.

23. Adapt

Trading is one of the few activities where you can never reach a pinnacle. There’s a theoretically infinite amount of money that can be made in the market, therefore there’s always room for improvement. Adapt and evolve. Focus on becoming a better trader every day. If market conditions change, adapt. If your strategy isn’t delivering the results you want, evolve.

24. Trading is Not Gambling

This should go without say, however there are still a lot of people out there who believe trading is gambling. They think the market is rigged against them and day traders are as fanatical as gamblers.

When done right, trading is not gambling. That said, it’s your role as a trader to differentiate the two. Do your research, create well-rounded plans, and identify setups with high probabilities for success.

25. Have Fun

As cheesy as it may sound, having fun is conducive to your success as a trader. The leaders in any field actually enjoy their work. You won’t become a top mathematician if you hate math, you won’t become a leading scientist if you despise science, and you won’t become a successful trader unless you enjoy yourself.

Enjoy the ups and downs of the journey, keep your eyes on the prize, and stay persistent.