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The Ability to Avoid Overtrading

Too many day traders feel that they must trade every day. Let's face it, some traders are addicted to trading. A day without a trade for them is like a day without a meal. The fact is that there are some days which offer few if any trading opportunities. The day trader who wishes to preВэserve capital and avoid losses as well as unnecessary commission charges should understand that day trading is not an everyday event. There will be days when no trades are indicated. Believe me when I tell you that things are better that way.

One of the telltale signs of the day trader about to go astray is the searching-for-a-good-trade syndrome. Have you ever found yourself sitВэting at the computer or quotation screen, bored because there have been no trades that day? Have you ever found your fingers idly rambling over the keyboard searching chart after chart looking for markets to trade? Yes, my friend, this is the first sign of trouble. Should you ever find yourself in this position, do yourself a favor and stop looking. Good day-trading opportunities within the parameters I have set forth in this book are plentiful, but they do not occur every day. Consequently, set yourself standards as to which markets you will day trade, and if there are no day trades in these markets do not allow yourself to endlessly wander about the keyboard looking for day trades in such things as orange juice or palВэladium. They may work for you from time to time, but the odds of sueВэcess are very slim. Take my word for it, the successful day trader will specialize in only a handful of markets and will do well at these. Do not attempt to spread yourself too thin by looking for trading opportunities where in fact they do not exist. And this brings me to my next point.

The Ability to Specialize

Successful day trading is a time-consuming undertaking which requires close attention. In many cases it require diligence, follow-through, and persistence. Although some day-trading techniques I have discussed in this book, specifically the gap methods, lend themselves to strictly mechanical trading, many do not. It will be possible for you to enter orders for gap trades without watching the markets closely. However, the vast majority of techniques require close attention. Therefore it is unfeasible for most day traders to be involved in too many markets at one time. I suggest that day trading three markets is sufficient for the majority of traders. In fact, for new day traders, I would recommend specializing in only one market, attending to this market thoroughly and carefully in order to develop your skills and to increase your overall profits.

What should the new day trader trade? Naturally, the answer to this question will change as a function of market conditions. Some markets historically have lent themselves well to day tradingтАФthe currencies, S&P futures, and Treasury bonds. However, some markets such as silver, soybeans, the petroleum complex markets, and other currencies make good day-trading vehicles as well under certain market conditions. Consequently, I would pay attention to these as well when they become sufficiently active and volatile. In terms of gap trades, there are many markets which are good day-trading vehicles inasmuch as entry will be on a specifically defined buy or sell stop with exit usually on the close of trading. Since gap trades do not in many cases require close attention, many markets may be day traded in this fashion. For the newcomer, however, I would recommend a very limited portfolio of trades until techniques have been mastered and self-confidence has been achieved.