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

All of the steps above were incredibly important because they slowed the atrophy of my account while I tried to find a winning trading strategy. In fact, I would say these steps got me to about break-even, or maybe even slightly profitable overall. However, I had to find my “edge” in the market if this day trading idea was going to work in the long run. Simply by trying different things over time I began to get a feel for what kind of trading suited my personality. Market Open trades felt like coin flips to me. Price reversal trades never seemed to work out. But I felt like I was a decent scalper and that I could recognize opportunities where a stock might make a bit of a run. In particular, I began to focus on stocks that were breaking their high of day or low of day price. Over time, I focused almost solely on “Break of High of Day” trades, or BHOD trades.

I really liked BHOD trades because there was almost no ambiguity about the setup. If a stock breaks its high of day, then it breaks its high of the day . For example, this is unlike a price reversal trade. When does a reversal actually start? How do you define it? I defined a BHOD as when the BID on the Level 2 broke the previous high of day sale [please refer back to Chapter 5 if you don’t recall what bids on Level 2 are]. This is the moment a buyer says, “I will pay more than anyone else has paid all day. ” I believe there is often power in that statement. Show me a decent pull back in price and then a confident climb toward that high of day backed up by increasing volume. Generally, I also want a stock with a news catalyst and high relative volume. I trade BHODs aggressively and exit my position in 50% increments. Early on, these exits will be at price pauses, and then, if the price continues to climb, I will attempt to exit more shares at important levels (half-dollar, whole dollar, yesterday’s high, pre-market high, etc.).

One of the most important advantages of focusing on a single, well-defined strategy is that it forces patience. Early on, I averaged over nine trades per day, but trading nearly only BHOD trades reduced that to five trades per day. I also became pickier, even among BHOD trades. I could recognize a strong one from a weak one and, as time went on, my consistency and profitability increased (as set forth in the table below) .

I also found that BHOD trades exist every single day. They will be more prolific on days when the market is strong, but some of the most profitable opportunities exist on a weak market day when an individual stock is performing in a contrarian manner. Many traders have been surprised by my discipline in waiting for BHOD trades. That being said, I don’t necessarily recommend this specific BHOD Strategy. Remember, strategies are personality driven. But, I highly recommend aggressively focusing on a single strategy if you are struggling to find your footing in the world of day trading. This is an endeavor that can take years to find success in. It is not a stretch of the imagination that you may need to spend months on a single strategy to verify if it has potential. But it may well be worth your time to find your edge in the market.