Day trading is fast and furious. It has the potential to yield huge you huge returns if you have quick reactions and great risk management. When you day trade you watch every tick. It is tempting to micromanage, and think every uptick or downtick is significant.
All of the best trades come from letting winners run and giving your positions room and time to work. One of the best day trading tips I ever got: “Stop micromanaging your f***ing trades.”If you’re on the right side of a trend, time is on your side.
Letting trades work, especially winning trades, is one of the most important skills a trader can possess. After teaching and coaching 1000’s of aspiring day traders, one of the most common issues I see is how they micromanage positions, which causes them to cut winners short and take unnecessary losses. Today we will talk about how you can break the habit of micromanaging positions:
Understanding How Markets Move
No market moves straight up or straight down. Stocks, cryptos, forex, futures. All of these markets can trend. And when these markets uptrend, they still have dips. Many anxious new traders interpret dips and moves against their position as a sign they are wrong. Take a look at the SPY weekly chart from the past couple years as an example:
The trend is up. But notice that it never just goes straight up. There are always pullbacks. Some of these dips on the chart were aggressive, but not all the dips were sell signals. You have to distinguish between a normal move against your position and move that constitutes as a sell signal. This will allow you to know when you should be stopping out of your positions, or holding them!
Trading Too Much Size
If you feel the need to watch every tick cause you are afraid of the stock dumping and you losing a bunch of money, you are trading too large. When you are in a position, you need to be able to leave the computer for a couple of minutes without worrying about it crashing. One of the best intraday trading tips I ever got: Lower your position size to the point where you can go to the bathroom when in a position.
Your need to micromanage your trades will diminish significantly when you lower your trading size. You will find that you will actually make MORE money by trading less size. We talk about this a lot because this simple solution has helped so many traders I’ve worked with over the years!
Keep Your Stop Losses Wide
Everyone loves a tight stop so they can tell themselves they are getting insane risk vs reward on a trade. But tight stops will more often prematurely stop you out than give you a low-risk trade.
Put your stop losses far enough away that your trades will have space to work, but tight enough that you are not taking unnecessarily large losses. To learn more about how and where you should place your stop loss, check out this article here.
Micromanaging often stems from a lack of preparation. You jumped into a trade, and don’t know why you’re in the trade in the first place!
This is what should be defined before every trade:
Entry Strategy and Price(s)
Stop Loss Price
Stop Loss Strategy
Profit Target (s)
Profit Taking Strategy
Number of Shares
When you have all of this defined BEFORE you enter a trade, it becomes a lot easier to let the trade work and keep your hands off the keyboard.
Day Trading Tips Summary
To Avoid Micromanaging Trades:
- Don’t Expect Markets to Move Straight Up or Straight Down
- Lower Your Position Size
- Place Stop Losses Appropriately
- Pre-Plan Every Trade You Take