Updated: Jul 30, 2020
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 belive 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 5 key elements (and a memorable acronym) that I think are vital for you to know and focus on to make money - whether that be a few extra dollars or pounds or a good living.
Similarly I´m not going to go into copious 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, these are my ´key elements´ and I´m sure there are plenty of traders who would either agree or otherwise. But they are not my concern. They shouldn't be you 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 but I´m not suggesting that its my way or the highway!
And last before I get into it, I would advise you to read up further on all of the key elements I list below (my book would be a good starting point) as there is obviously a need to understand each item on the list to a much greater degree.
So what do I consider to be the key focus elements essential to make money day trading?
1 Levels: Location, location, location. Entering at the right location is without doubt top of my list. What do I mean by this - simply that all your trades must be initiated at a planned level on the chart. To be competent at 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 day in question and knowing in advance where you will trade. Trading without a plan of where you will trade is a sub standard method of operation. Once your chart is marked up - stick to those levels. Sure you can let your market evolve and watch the price action and trade accordingly but having a plan at the outset is by far the better way to approach your trading. Trading outside of these better odds levels is simply making your job harder and can bring on all those bad habits that you already know kill your day trade edge - FOMO, revenge trading, and especially ´death by a thousand cuts´ diddling in the middle. Stick to your levels and plan.
2 Patterns: Know what you´re looking for. What type of price action are you 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 how the level has been reached (candle formation, rime of day, tempo etc.) and on whether I have a bias for the day. For example if Im bullish due to my read of the context 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. By the way, I like M1 doji´s if I wait to enter.
3 Execute. 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 eloquent about it - just fucking do it!
4 Manage your trade. Know your trade management procedure, where your stop is and where your target is. I prefer to take partial profits and get my stop to break even relatively quickly - I've found this suits my mentality and maximizes my gain as a day trader. Admittedly this is not to everyone's liking. Figure out what works for you.
5 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 you could use the following Acronym:
Plan (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 the key things I believe will improve you´re profitability as a day trader and therefore about where your focus should be. There is much more I could add but the key outtake is this:
Focus on these elements, do more digging to find out more (read my book) and put together your own overall day trading plan.
Hope it helps.
Hasta luego compadres.
PS: this article was sparked by a conversation with 2 day trading buddies of mine @broekie and @pawelgerbal so thought I´d better give them a mention before this article goes viral and attracts the millions of readers I fully expect it will !!