4 Secrets of Successful Day Traders

Making money on the stock market is a great way to build wealth rapidly. But doing so is easier said than done. With financial markets being as complicated as they are, the people who break through and make fortunes can sometimes look like wizards. What did they know that we don’t? Did they just get lucky?

The reality is that everyone operates a little differently, and a little bit of luck is certainly involved. But that doesn’t mean that we can’t glean lessons from the success of other traders. For those of us who aim to make our cash from our computers are day traders, it’s best to emulate the people who have had the most success day trading. And if you want to be like them, you’ll want to pay close attention to these four things that successful day traders do.

They keep their cool

Day trading is as full of ups and downs, just as the market is. It’s an exciting professional, but it certainly isn’t easy on your mental health. One moment you’ll be way up, the next moment way down. You’ll think you’re a genius, and then you’ll think you’re a moron. Being a day trader is a bit like being a professional gambler — or, at least, that’s how it can feel.

The problem comes, though, when you start making big decisions at these emotional moments. Thrilled with big gains, you could get greedy and wait too long to sell. Horrified by losses, you could sell low and miss the rebound.

The best day traders realize when they’re being emotional. They manage to keep their cool and make rational decisions. Be conscious of your stress, take care of your mental health, and establish your rules for trading before you start to help yourself avoid “gut feeling” mistakes.

They stick to their strategy

Your investment strategy is key to avoiding emotional mistakes. When you have a great investment strategy, you have guard rails on your decision-making. When in doubt, you can simply turn to the strategy to see what it suggests.

Smart investors rarely, if ever, deviate from their strategy. They know their techniques and they know how to apply them to what they see in charts about momentum and trading patterns. And then they just execute the same sorts of moves again and again. That’s what works!

When you give yourself permission to make a gut decision and override your strategy, you open the door for all of the risks that come with an inconsistent application of a strategy. You could end up making emotional and counterintuitive decisions that ruin your profits.

They’re smart about risk

Day trading means living with risk every day. Day traders are, by definition, the sort of active traders who use tricky methods to bet on or against stocks in ways that could cost them dearly. In the stock market, risk and opportunity are related. If you want to make big bucks, you have to make big bets.

But smart day traders don’t have the gambler’s mentalities. They aren’t seduced by unlikely outcomes. They’re always aware of how exposed they are to risk, and they know how the dominos could fall and affect every part of their portfolio.

Good day traders understand all of the types of risk, from market risk to the more specific threats they face. They know that penny stocks are almost always a sucker’s game, and they know how to hedge their bets. They take bigger risks than casual investors, sure, but they’re always in control.

They have safety nets in place

Understanding risk means setting up safety nets, too. Smart investors set up stop-loss orders and have plans in place so that they know what to do if and when things go wrong. That helps them stay calm and make rational decisions, and it helps limit their exposure to the risk that they’ve properly assessed.

Smart day traders have big emergency funds to help them get through lean times. They have separate retirement accounts in safe places. They move money from their profits into savings accounts, so that they’re not back to square one if they have one big bad day.

Be smart. Be like the most successful day traders — the ones who stay successful, not the ones who make a fortune but then lose it. Move carefully, and you’ll have a bright future.