How to Make a Profit in Daytrading

Submitted by Marco Palmero on 21 August, 2009 - 18:49

How to Make a Profit in Daytrading

For many, making a profit daytrading is a task left to the professionals. For some it is a profitable business venture. For the sceptics, it is questionable whether or not daytrading is a profitable and viable trading activity. So, how do you make a profit daytrading?

What is daytrading? The definition of daytrading is any trade which is opened and closed on the same day. In other words daytrading is intraday trading. In the small niche of daytrading there exists sub-braches which are still classified as day traders – since they initiate and end their trades within the same trading day. There are the swing traders, pivot traders, robot traders, scalpers amongst many labels. It doesn’t matter what technique you use, if you open and close your trade and realise your paper profit or loss in one trading session you are a daytrader.

There are a variety of successful and profitable daytraders – as with all of trading, not all of them conform to one strategy. Some may only use daytrading, others may combine it together with a longer term trading strategy. However, short term daytrading is psychologically taxing if you don’t have a strategy in place. In other words, with no strategy you are basically gambling.

As you may already be probably aware: there are many permutations of the multitude of "profitable" daytrading systems out there in the market place for purchase. And there also many traders who make up their own trading system. Each system would have their own particular variables of which you can also have an infinite amount of permutations. Many simply resort to the default values. Which brings us to the next point: If you choose a trading system, make sure you understand the scope of the system: when does it break down? When does it work? How does it work? Don’t be lazy about it. We’re talking about professional trading here not gambling. For example, oscillators like the RSI don’t work if the price action is trading sideways.

I Want to Profit from Daytrading

If you want to make a profit daytrading you need do do a few things:

  • Read a lot and read little. What I mean is, read a lot about trading, educate yourself. But read just enough about a certain element, try it out, then research more about that small trading element..
  • Backtesting. This is a very "enjoyable" activity. This is like exercise: test your strategy during off market times. See if it actually works or not. If it has worked in the past, chances are it MAY work in the future. (Although past performance may not be indicative of future performance)
  • Watch the market. Most daytraders may agree with me. When you watch the ebb and flow of the market you can start to see patterns (assuming you’ve been studying them). Watching the ticks daily while you are working may even give you a second intuition of price action.
  • Paper daytrading. I’m not a fan of paper trading, but most conservatives suggest you paper trade before outlaying any real capital.
  • Money and Risk Management. You must always have a money management and risk management pan in place which will detail your exit strategies for your trades: for when they do well and profit and for when they go absolutely wrong and lose money