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The Psychology of Day Trading

Perhaps the single most important aspect of any trading methodology, whether for the long term, intermediate term, short term, or day trade, is the psychology of the trader. My work with trader psychology dates back to the first trade I ever made in 1968. Having been trained as a clinВэical psychologist, and having practiced as such for quite a few years, I am very familiar with the limitations of the trader and with the psychoВэlogical road blocks which traders constantly throw in their own paths. My book, The Investor's Quotient (Wiley, New York, 1980), published in 1980, has continued to be a best-seller through the years, indicating not necessarily that my writing skills are tremendous but rather that traders realize their limitations and seek to know more about how to overcome them.

There are those who will disagree with me, but I feel strongly that this chapter is possibly the most important one in the entire book. While many of you may choose to either ignore what I have said in this chapter or skip it entirely, I do sincerely believe that to do so would be the worst mistake you can make. Although it is impossible to completely discuss in one chapter what takes several books to explain thoroughly, I will do my best to acquaint you with the pitfalls which await you as a day trader.

Day traders are in the unique position of having a very short term relationship with the market. For many years day trading has been conВэsidered to be the most speculative of speculative trading activities. I believe that this is a market myth that has been perpetuated by those who are unable to day trade or who are afraid to do so. The fact of the matter is that the day trader is in an advantageous position. The true day trader understands the limitations of what can be achieved within the day time frame. The day trader is, therefore, the sharpshooter of futures trading. The day trader is interested in finding the correct target, taking aim at it, pulling the trigger, and bagging the prey. As mercenary as this may sound, that's what day trading is all about. The effective day trader will keep his or her powder dry, will aim only at the most promising targets, and will aim only at targets which are likely to be hit.

The day trader must be consistent, efficient, adaptable, and persistent. These are the most important qualities that a day trader can develop. Because day trading is unique among the many different avenues which are open to futures traders, day trading has its unique brand of psycholВэogy. In this chapter I will attempt to acquaint you with the major issues that face the day trader and, moreover, to suggest to you methods which may be used to overcome your limitations, and to maximize your strong points.