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Good Day Traders Are Disciplined

Successful day traders have an innate sense of discipline. They know when to commit more money to a trade and when to cut their losses and close shop for the day.

Now, how can you get that discipline? By doing these things:

  • Develop an investment and trading plan. Although investing is probably not your primary occupation, you do want to have in writing what your objectives are and how you plan to meet them given other constraints: time, tax considerations, and risk tolerance.

  • Carefully evaluate your performance. Keep a trade diary so that you know what you are trading and why. Are there ways to improve? Are you making mistakes that can be avoided?

  • Set up a sell rule. A quick way for an investor to improve her trading discipline is to set up a sell rule, a rule that tells her when to cut her losses and move on. For example, if a stock is down 20 percent from where it was purchased or where it traded at the beginning of the year, it may be time to sell, regardless of what you hope it will do.

Traders have to go through these exercises to survive. Investors often skip these steps, but they shouldn’t.

A lot of long-term investors can get sloppy. They have done so much research and committed so much time waiting for a position to work that they often forget the cardinal rule of the trader: The market doesn’t know that you’re in it.

The stock doesn’t know you own it, so it’s not going to reward your loyalty. Securities go up and down every day for no good reason, and sometimes you are going to make a mistake and will have to cut your losses. There’s no shame in that, as long as you learn from it.

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