Updated: Nov 22, 2021
Ok - you got me - the title is only there to catch your attention! However, it does sort of mask a deeper meaning.
That is, that in all of the word count written about day trading and all the different theories, processes, methods and strategies, there are some essential elements I believe you need to focus on to have any chance of making a living in this game.
With that in mind, what I want to try and do here is to distill everything down to some key elements (and a memorable acronym) that I think are vital to know and focus on to make money - whether that be a few extra dollars or pounds, a good living or a fortune.
Similarly I´m not going to go into detailed explanation as my objective is to make a simple statement to make sure you remember these key issues and have them ´top of mind´ at all times when trading.
Moreover, while I believe the guiding principles behind what I write below are good for all trading styles and types, the detail of each element may differ by trader. I´m sure there are plenty of traders who have different ways of assessing trades to the way I do it. But they are not my concern. They shouldn't be your concern either. Trading is an individual sport and there are many ways to make it work for you. Hopefully this article will resonate and help.
So what do I consider to be the key focus elements essential to make money day trading?
1 Plan. The first step in any endeavour be it in business, sport or life in general is to have a plan. You need to know what you are going to do, why you are going to do it, when, how and where. For my style of day trading the first and perhaps the most critical aspect of my plan is to know where I am interested in entering into a trade on any given day. This comes from a rigorous assessment of S & R, previous near term price action, and my view of the context of the day / chart in question. Location, location, location you might say is ´A number 1´ for me.
What do I mean by this - simply that all your potential trades should be initiated at a planned level on the chart. You have to have a view as to where the better odds trades lie on the chart and to be competent at analyzing the current environment, chart shape, tempo, and marking up your levels is obviously something you need to learn. But to try and keep this simple, its about marking up S & R levels for your market and the day in question and knowing in advance where and why your better odds trade will most likely be executed.
Trading without a plan of where you will enter, long or short, and why (the context), is a sub standard method of operation. Once your chart is marked up - unless there is a glaring reason, stick to those levels. Sure you can let your market evolve and watch the price action and trade/scalp accordingly but having a plan at the outset allows you to think through scenarios and ask yourself ´´what if ´´ questions as price action unfolds and gives you a framework for assessing action. In general, pre planned ´key´ levels carry weight with others as they can also see them and trading outside of these better odds locations (price levels) is simply making your job harder. It can also bring on all those bad habits that you already know kill your day trading edge; such as FOMO, revenge trading, and especially ´death by a thousand cuts´ diddling in the middle. Stick to your levels and plan.
In addition to pre planned levels / zones you then need to watch the price action you are looking for at the levels you´ve marked up to inform yourself whether you will trade straight away once the level is hit or whether to wait for further information. Its a toss up for me whether I trigger instantly or wait for some type of ´confirming´ price action often depending on the level itself (is it higher time frame and or a key level) how the level has been reached (candle formation, time of day, tempo, spikes or grind etc.) and on whether I have a bias for the day from my read of the context. For example if I'm bullish for the day and / or if I see daily pa looking to the upside I will most likely hit longs as soon as the level is hit. If I take a short in this environment and I still hold the upside bias I might wait for some confirming pa. Do your research on what you like to see and again - stick to it.
2 Do. Execution. When you see a level and or price action come to your planned trade set up - take action. Not much to say about this but its without doubt crucial to your P&L. Hesitation, prevarication and dithering reduce your potential day trade gains enormously. You´ll undoubtedly know from your own experience how much dicking around before you pull the trigger costs you. Not wishing to be too ineloquent about it - if it is in your plan - just fucking do it!
3 Manage your trade. Know your trade management process, where your stop is and where your target is. If your stop is tagged - so be it - you take the loss. If your method says you have to wait for the final target to be achieved no matter what else happens - do that. If on the other hand you prefer to take partial profits and get your stop to break even relatively quickly - do that. Above all else stick to your plan.
My personal trade management plan / process as a day trader / scalper is to take partials and get my stop to break even relatively quickly with a portion remaining to catch any potential runner. I've found this suits my personality / mentality and maximizes my gain as a day trader. Admittedly this is not to everyone's liking. Figure out what works for you.
4 Refine, Rinse, Repeat. This is about learning from what you have done and looking for improvement in any individual aspect of your trading. We all know the theory of marginal gains leading to massive overall improvement. Its the same in trading. Check what you've done and keep on looking for those marginal improvements that will impact your P&L.
In a nut shell:
Plan (location, levels & patterns)
Manage (trade management)
Refine (continuous improvement)
PDMR for short.
Ok - now you might be thinking - yeah - its ok for him to say this stuff but there's a ton of detail behind every point. I know, and I agree. But I said at the start I wanted to keep this short, clear and to the point.
This is about guiding principles, process and method whatever type of trader you are and howsoever you approach the market. PDMR, is a universal approach that I believe will improve you´re profitability as a trader whether you are a swinger, day trader or a scalper..
There is much more I could add about each of these element but that's not my purpose here. The key outtake is this:
Focus on these elements, do more digging to find out more and put together your own overall trading plan - then stick to it.
Hope it helps.