How to Day Trade for a Living: Tools, Tactics, Money Management, Discipline and Trading Psychology

This is perhaps the easiest piece of advice to explain and the most difficult to follow. A hard stop is an automatically executed trade (whether limit or market order) that will exit your position at -1R. Every trading book I ever read said to use hard stops. Every successful trader I ever encountered said to use hard stops. It seems like a completely rational and logical step. And yet, you will constantly find traders either not using hard stops or removing them when they are about to get stopped out. I was no different when I started trading. There are many situations that can cloud your better judgment:

Personally, I was more often guilty of placing the stop and then removing it because I did not want to take the loss. And -1R would become -1.5R and then -2R and so on. In these situations, an almost decision-making paralysis would overtake me. If it got really bad, I would begin to conjure up alternate strategies. “ I’ll see where it gets by the end of the day. ” “Maybe I’ll swing trade it until tomorrow. ” Whatever my original strategy had been was now co-opted by desperation. And, in some cases, I ended up taking some very bad losses. This was just a psychological battle within myself that I had to win and I eventually found the discipline. I had to learn that a -1R loss is actually a really great outcome. -1R can be overcome with one trade while -3R might take several “green” trades to erase the loss. It also allows you to discard a losing, distracting trade and begin the patient hunt for the next good setup.