The opening trading days of January have already been wild, igniting a blazing fire in the micro-cap world. Whether you’re long or short, honestly, who cares? As day-traders, all we ask is for volatility furthered by more volatility.
If you do trade to the short-side, a specialised short-selling broker can definitely aid and help you in your quest to becoming a profitable day-trader.
But, ultimately, what seperates a winning trader from a losing one is a trader that has rules; and more importantly can stick to them.
To get an idea of what I’m refferring to here’s a list of common rules trader’s follow from investopedia.
Now let’s break down a few of mine.
If in doubt, get out
This is such an obvious one that far too few people follow. In an era of commission-free trading it should be an easy follow because there’s no cost to get out of a trade. This pause in action, without the intense emototion of having money on the line, allows for space to breath objectively before creating a new trading plan.
In the earlier days of day-trading (prior to 2018) when a stock (up a lot) was consolidating, we’d often wait for the crack. These days a stock consolidating, especially trading higher volume, is bad news to a short-seller.
On this occasion you can see I took profits when witnessing the double bottom/ basing and, ultimately, I could have made a little more on the trade. However, consolidation, particularly in the morning, can cause a lot of stocks to squeeze and as a short-seller, I want to cut before it’s too late.
Cut at $100
Over the years I’ve always been good at growing small $600 - $800 accounts into much higher amounts. Occasionally one may blow-up but overall it’s a profitiable strategy when you withdraw from an account up $5k – 15k. Managing risk, however, when being aggressive is essential.
Most would say you should never risk more than 1% of you account on a single trade. I’m okay with refunding an account so I like to risk 5 – 10% on A+ set ups to grow the account.
So for example: if I risk $100 on a trade with a $1,500 account I have to lose 10 times in a row before I hit account minimums and lose margin. My win rate is usually above 50% so providing your trade risk reward is 1 for 1 or as expected 2 or 3 to 1 the account should grow nicely.
The problem is always when you don’t cut at risk, here is where you lose the edge. It’s a mistake I’ve made many times and am absolutely not the only one.
As the account grows so does the dollar amount you should risk.
So these are my main rules for 2022, what are yours? Tell me them on twitter @jonk87 or reply to the tweet of this post. Oh, and if you made it to the end give it an RT so I can see who arrived at the bottom.
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