Jan 16 Practice Day Trading: The Significance
In a very familiar old joke, one gentleman asks another, "How do you get to Carnegie Hall?" The Second gentlemen respond, "Practice." I believe the same advice applies to the person who asks how to become a successful day trader. Most day trading systems (at least the good ones) are not complex. For instance, my system is built on the simple premise of following the (stock market) leader. It isn't rocket science. If it were, I wouldn't be able to follow it. Yet, all too often, some of my day trading students let the simplicity of the system lull them into a false sense of security. To practice, day trading is no different than practicing any other art.
Practice Makes Improvement
"You can't use paper profits as a down payment on a new car or the family vacation, but paper profits are much better than real losses."
The truth of the matter is that most things in life are simple. It's simple to swim, drive a car, and hit the perfect golf shot. It's only a matter of taking very simple actions and putting them together in a specific order so that you produce the desired result. Yet, very often the ability to put these steps together requires practice and plenty of it.
Think about it. If you had the good fortune of taking a private golf lesson with Tiger Woods, would you then immediately quit your job and try out for the PGA Tour? After all, if Tiger told you everything that it took to be a PGA champion, then why couldn't you just follow his advice and start raking in the big bucks yourself? It works for him. It should work for you, right? Wrong. The reason it works for Tiger Woods is that he has spent more than 20 years practicing his craft.
The same is true when you read a book or an article on day trading or attend a live training event. Trying to translate that knowledge into day-trading profits without practice would be like trying to learn to swim by merely reading a book. It won't work. You can get an understanding of the basic techniques from a book. But to properly learn to swim, you must get in the water and splash around a bit. Well, the same thing is true for day trading. You must get into the water (in this case, the stock market) and splash around some. In other words, you must practice what you can learn.
How To Practice Day Trading
Needless to say, when you first start, you're not going to be a master day trader. You're going to swallow some water. For that reason, I always recommend that my students refrain from doing any live trading for at least 30 days after taking my day trading course. During this period of practice, I ask them to set their trading software to a simulator and simply practice what they've learned through paper trades. Only after they are consistently making a profit should they even consider "going live," If you're new to day trading, I recommend the same thing. Practice what you've learned until you can carry out the actions that will make you consistent profits.
In my experience, this is where many of my students stumble. They can't resist the temptation of getting into the game. After all, it isn't much fun to brag to your friends that you are making a killing in the market on paper. You can't use paper profits as a down payment on a new car or for a family vacation, but paper profits are much better than real losses. If you think your family will look at you funny when you tell them that you just made $7,500 in paper profits. Just imagine the looks you'll get when you have to admit that you lost $7,500 in real money because you jumped headlong into the deep end of the market without first learning to stay afloat.
Minimizing Day Trading Starting Damages
If you're going to make mistakes (and you will), it's best to make those mistakes for free. Over the years, I've met many day traders who didn't heed this advice. They were so anxious to try out their newfound skills, they ended up exposing themselves to significant financial losses. As a result, they spent their first few years of day trading trying to recoup the losses they incurred in the first few months.
To demonstrate how devastating these early losses can be. Let's suppose you belly-flop into day trading by losing half of your initial investment in the first few months. With half the capital to work with, you will need to be twice as good as the average trader just to make the same amount. You won't be twice as good as the average trader because you'll be just starting. But the need for spectacular returns will force you into making spectacular blunders. Before long, you'll be dead broke or very close to it.
Trust me, I've seen it more times than I care to remember it. Yet, each time, it is equally frustrating. That's because it is 100% preventable by just taking the time to practice the system you've been taught. How long should you stay in training mode? Until you can consistently make money on paper. You shouldn't even think about getting into the day-trading game until you can make paper profits for at least four out of the five days. I realize that this may seem like a lot of time spent on the sidelines. But if you ask me, "How do I get to Easy Street?". My answer will be "Practice!"