Day Trading Psychology: An Unspoken Rational Approach
If you do an operation and your heart starts pounding, it means you are *not* ready to operate yet… Some people who are not ready to operate also have other problems:
Pull the trigger to enter
Staying with a trading strategy long enough to judge it
Let good trades go bad
The psychology of day trading plays a role in these problems, and books have been written to help traders deal with these problems, but most of them do not offer a practical solution.
To be successful in day trading support and resistance, you need to be confident in your trading strategy. Most traders with less than 2 or 3 years of experience, and for those who are just starting to learn day trading… well, they have nothing to rely on. (But there is a strategy that really helps inexperienced traders, so don’t get discouraged, we’ll talk about that in a minute.)
If your trading strategy doesn’t consistently make you money, in “real time”, you can’t trust it. But how can you tell if your method is good when you don’t yet have the courage and discipline to trade it?
The psychology of day trading involves building trust, and consistent, profitable results will lead to trust. Being a veteran trader of over 27 years, my daily trading advice to you would be to trade your strategy in simulation mode so that you can judge it rationally. The inexperienced trader (and even some traders with years of experience) have a hard time thinking rationally when they are afraid of losing money, so take that fear out of the equation by using simulation trading as a tool.
Some “professional” traders will tell you that simulation trading is useless or even “the worst thing to do”. But it depends on why and how you use simulated trading. If you choose a dummy strategy that has a defined number of setups, a fairly specific strategy to limit losses, and you stick to that strategy like glue, never deviating from it, then dummy trading is a logical way to test. your method in real time. and it will be of great help to you.
The psychology of day trading also involves self-control. Cultivating good habits like self-control and building confidence while using a simulation method will help you when you’re ready to trade for profit.
Having confidence in a method you have traded in simulation mode is the most rational starting point for a new trader or any struggling trader.
So start the successful part of your trading career with a strategy that you have personally learned to trust through real-time trading (preferably simulated trading).
Not all trading strategies are created equal when it comes to the psychology of day trading, and this is important to understand.
Any strategy that loses more than 60% of the time (such as a trend following system) will require tremendous courage to trade, no matter what you do. These strategies demand a certain type of person (rich, with ice water in the veins).
Thousands of strategies force you to place a fixed stop and wait to see if it is hit. These are hard to trade with confidence, even IF you can find one that wins more than 65 – 70% of the time and make money in the process. That’s a big YES. You can spend a career and thousands of dollars seeking success with this type of strategy, and most will unfortunately end in failure.
My method for trading support and resistance is rarely talked about, but in addition to consistently making money for me for over 27 years, it has a rational approach built into the psychology of day trading.
This is what I’m talking about…
Fear of trading is associated with lack of control.
With most strategies you can only control a few things:
You can learn to control your inputs through discipline and strict settings.
You can somewhat limit the size of each loss by using fixed hard stops.
You can control your overall chances of success by finding a strategy that works for you in simulated mode BEFORE you trade it for money.
You can control the days and hours of the day you trade.
You can control the number of contracts you trade, putting more money at risk on your higher probability settings and less on your lower probability settings.
Most day trading futures traders don’t know how to control the total size of their losses. Learning to do this is the most rational way to deal with fear, greed, and other issues of day trading psychology, and is the primary key to my own success as a trader.
Remember this simple rule that will build your business confidence like nothing else:
** Exit any trade that does not go your way immediately. **
Forget commission, forget how many hours you waited for setup, forget everything but this rule. I know it’s radical, but do it.
Then YOU will be in control of the one factor most traders don’t think you can control: the negative outcome of the current trade you are in.
The first rule is used in combination with the second rule…
**Each trade begins as a scalp until proven otherwise. **
This means that if you make a 2 or 3 tick profit and the market stops and moves a tick in the wrong direction, you will immediately exit with a 1 or 2 tick profit… No questions asked.
This simple rule gives you control over your win/loss ratio, another thing that most traders believe is out of control.
I trade support and resistance levels because they are built into all liquid markets. They mostly stem from the day trading psychology of people who are stuck in a bad trade and want to break even as soon as possible. This sentiment does not change from year to year or generation to generation, so day trading support and resistance can never become a strategy of the past.
I write a daily market report giving tomorrow’s support and resistance levels, including my own trading plan, as well as intraday updates. Professional and experienced traders have used my RBI Trader Updates since 1996 because I am accurate and my trading plan works for the long haul.