All those talks about proper money management and follow your trading plans are not secret to day trading success. They are principles to keep you out of trouble only. They are similar to what kindergartens teach the kids so that they would not do stupid things to harm themselves.
The real secret to day trading success is to utilize the strength in your character and the skill sets you already have to create a trading method that fits both you and the market that you are going to trade. That also means you should absolutely not try to trade in any way that you are not comfortable with.
Following are techniques a trader should use to find his edge.
Embrace Your Decision Making Limitations
To get the best trading results you need your mind functioning properly. But how do you ensure that you can get that throughout the trading days? What about keeping it up day after day of hectic trading? What you need to do is to identify your physical limitations in decision making and embrace them by not over using your brain. This in turn will help you make better trading decisions consistently.
First, know your speed limitation in making decisions on complex issues.
If you cannot make up your mind within seconds on your trading decisions. Forget about trading high resolution timeframes like 1 minute or higher resolutions (e.g. 100-tick, 5-second). You do not have what it takes to do that. Yes, training may help but it is better to focus on what you can instead of adding another obstacle to your pursuit.
If you cannot arrive at a decision within a minute most of the time, you should avoid day trading all together. A trading model pumping out signals will not help because the time it takes you to second guessing the model will ruin the system anyway.
Second, know your tolerance of decision making frequencies.
If you find making consecutive decisions difficult, like you are getting mental fog, getting frustrated easily, feeling tired or having unforced decision errors, you must reduce your decision making frequency. This change implicitly forces you to switch your primary trading timeframe to a higher one. You can experiment by reducing your decision making down to every 5 minutes. If that’s too much, reduce it further to every 10 minutes and so on. The intraday timeframe that is suitable for you will be the one that you can make sound decisions consistently without getting tired by the end of the trading day.
Majority of successful day traders do not glue themselves to the screen at all. All the great traders I know apply one form or another of thin-slicing the important moments in the markets they trade. It is a form of optimization. By optimizing the time and energy you spend, you can make the best decisions you are capable of at the more important moments in the market.
Know Your Mental Endurance Limitations
Restraining oneself from watching the market until decision making time can help reduce anxiety and indecision issues. Having the discipline to stay relaxed until the necessary decision time (i.e. when the bar on your chart is about to be completed and that a new bar is about to be formed) is great but not everyone can do that.
Once you glue yourself to the screen monitoring every tick, you mind cannot control itself in response to the changes in the chart. It is especially true when you have a position on. Your mind is working hard to make sense out of the information every second. You are practically setting yourself up to burn your brain out.
Not everyone can analyze a fluid situation dynamically like the chess grandmasters do. Reduce the decision making process to very specific conditions and shut out the rest. After all, you are not playing chess. You are not required to compete in trading from start to finish. You can pick the battle you know you have better chance to win. Do not even look at the markets when the prescribed conditions are not showing. That will limit your mind from random thoughts messing up your decision making process.
Some people are capable of highly concentrated real-time processing. But such talent has its limitations. Even if you are physically fit, using mental strength in highly concentrated ways every day will burn the brain out very quickly. This is what happen to many day traders working for trading firms as they are pushed to perform. It is not a good idea if you are planning to make day trading your career.
The solution is to utilize the talent by trading within a very short time window every day (e.g. just the first 10 minutes from stock market open). This allows the trader to fully focus within that short period of time making analysis and decisions on every tick. The rest of the day the trader can do other productive things. Most important of all, the trader is giving the brain time to recover so that long term performance is not jeopardized.
A friend of mind has been trading Nifty for many years. He only engages the market in the first 30 minutes. He is making a good living from that. He is a great example of someone who knows his limitation and stick to a plan to make day trading working for him.