Unlike other types of stock trading and investing, day trading typically involves holding securities for only one day. Day trading is risky and it can be stressful, especially if you’re not prepared. Find out what personality traits you should have if you’re considering a career in day trading, useful websites for Canadian day traders, and a list of the most common mistakes day traders tend to make.
Characteristics and personality traits of a good day trader
Day trading can be a potential career option — for the right person in the right circumstances. Being a successful day trader requires certain personality traits, like discipline and decisiveness, as well as a financial cushion and personal support systems to help you through the tough times. Think you have what it takes to go into business for yourself as a day trader? See how many of these characteristics apply to you:
Discipline: Day traders maintain strict discipline about how they approach their trading day and what they do during market hours.
Most day traders work at home, alone. If being in charge of your own business and trading account sounds exciting, then day trading might be a good career option for you.
Quick-wittedness: Day trading is a game of minutes, so you can’t be deliberative or panicky. Traders have to have act quickly when they see a buy or sell opportunity.
Can you make a decision and act on it? Can you assimilate information quickly into a good strategy? If you mess up, do you figure out what you did wrong? If so, you have the basic personality of a good day trader.
Good day traders are persistent. After they find a strategy they trust, they stick with it.
Tech-savvy: If you like to play around with programs, enjoy spending time on your computer, and understand how to set up hardware and software efficiently, you’re in good shape for day trading.
Interest in the markets: If you watch the business news for fun and follow the stock market, you might be a good candidate for day trading. An understanding of the cycles and systems that drive securities prices will give you a foundation on which you can build.
Investing experience: If you’ve invested in the past, you’ll know some of the language and limitations of the markets. That will give you a base to work from.
Knowledge of trading systems: It can take a long time to find a strategy that works enough of the time to make trading worth your while. If you’ve taken the time to create and test a good strategy, then you’re ready to go.
Can afford to lose money: You shouldn’t be day trading with money you need to live on. Be sure to set aside enough cash to cover your living expenses while you get started. Also keep a second pot of money, your walk-away fund, so that you can quit day trading and move on to your next adventure if you decide it’s not for you.
Strong support system: Trading is stressful. The markets gyrate with news events that no one can foresee. Good day traders are psychologically strong. They have people and activities in their lives that help give their brains a break from trading, such as regular exercise routines to having good friends and hobbies.
Internet resources for day traders in Canada
Here are some good websites for Canadian day traders, offering day trading strategies, market insights, and ideas on managing risk, taxes, and stress:
Elite Trader:Elite Trader is one of the big trader communities online, with forums, book and software reviews, and broker ratings. The participants can be passionate, but the information is often great.
IndexArb.com: Interested in trading futures on the market indexes? This site has useful information. It lists the premiums on different contracts, offers strategies for different market conditions, and gives you some good background information to help you make your own decisions.
Reddit:Reddit, with its forums on just about everything imaginable, has plenty of discussions for day traders. There’s some great information here, but watch out for trading tips of dubious quality.
TMX: The operator of Canada’s major stock exchanges. TMX provides official market data, trading hours, product information, and educational resources relevant to Canadian-listed securities.
Canadian Investment Regulatory Organization: Canada’s national self-regulatory body for investment dealers and trading activity is a key resource for understanding margin rules, leverage limits, and investor protections.
Bank of Canada: While traders don’t always pay attention to economic data, it’s still important to know what might influence the broader market. The BoC’s website provides economic insights, interest rate announcements and policy updates that can influence currency markets and overall market conditions.
Common day trading mistakes
Day trading is tough. Many day traders lose money, in part because they make obvious, avoidable mistakes. Here’s a list of some of the most common mistakes that day traders make. Following them is no guarantee that you will make money trading, but it could reduce your risk and improve your odds of being a day trading success in Canada.
Starting with unrealistic expectations. Some research shows that 80 percent of day traders wash out in the first year. Yes, some traders make a lot of money. But they are the exception.
If you go into trading knowing that it’s difficult, that you should only risk money you can afford to lose, and that you need to think about trading as a business, you’ll have a leg up on those who think they’ve found an easy way to make it big from the comfort of their own home.
Starting without a business plan. Successful businesses have business plans, and your trading business is no different. You need to specify what you are going to trade, and when, and how, and with how much money, before you get started.
Determine what equipment you need, what services and training you want and how you will measure your success. Having a plan will keep your expectations in line and create a professional starting point for your new trading venture.
Starting without a trading plan. A business plan sets the framework for your trading business, but you need to fill in the details. How are you going to trade? What signals will you watch for? Why will you enter a position, and why will you close it? That’s your trading plan.
Good traders have trading plans, so that they know exactly what they will do as they see opportunities in the market. This reduces the fear and doubt that can unsettle traders and it heads off the panic that hurts more than a few.
Failing to manage risk. Even traders who stick with it have many losing trades. That’s why they have risk management systems in place. Their trading plans include stops, which automatically execute buy or sell orders when securities reach predetermined levels. They also have a money management system so that they risk their capital appropriately.
If you’re going to day trade, use the protection offered by stops and sound money management. Don’t risk money you can’t afford to lose, and plan for the risks that you take.
Not committing the time and money to do it right. Day trading isn’t something you can squeeze into an hour a day as a hobby. To do well, you need to set regular hours and have enough money to generate reasonable returns without unreasonable risks. If you have days of losses, a small account will quickly end up with too little money to meet minimum order sizes.
Ultimately, day trading is not for the faint of heart, but for those who can stay focused, enjoy reading complex charts and are interested in the unpredictability of the markets, this could be for you.
Bryan Borzykowski is an award-winning financial journalist, who writes mostly about investing, personal finance and small business. He’s the co-author of Day Trading For Canadians For Dummies and contributes to the Globe and Mail, Business magazine, the Toronto Star, MoneySense and other leading Canadian publications. You can find Bryan at www. bryanborzykowski.com or on Twitter @bborzyko.
Ann C. Logue is a freelance writer and consulting analyst. She has written for Barron’s, the New York Times, Newsweek Japan, Compliance Week, and the International Monetary Fund. She’s a lecturer at the Liautaud Graduate School of Business at the University of Illinois at Chicago. Her current career follows 12 years of experience as an investment analyst. She has a BA from Northwestern University, an MBA from the University of Chicago, and she holds the Chartered Financial Analyst designation.
