If you plan on day trading the capital markets, you should view this activity as a business. You need to carefully evaluate your costs and revenue requirements, and make sure that there is a strong likelihood that you will generate net gains.

Day trading is not gambling and if you look at this process in a haphazard manner, you are bound to lose money. Here are some day trading disciplines that every trader should master.

Come up with a strategy

The first step is to come up with a trading strategy that will work in real-time. If the strategy is systematic, you should back-test the criteria against historical data. There are several platforms that will provide you with these capabilities. Once you have tested your strategy, you should forward test it using real-time data. One Financial Markets offers a demonstration account which will allow you to see if your strategy works using virtual funds with real-time data including spreads.

Your strategy should incorporate a sound entry and exit, as well as robust risk management. Prior to risking your capital, you should determine if the risk management you plan on using can be successful over time. For example, if a trader’s risk and reward are the same (make $1 for every $1 you risk), they need to win more than 50% of the time to make money.

Evaluate your costs

The costs of trading the forex, commodity, index, and share markets come in a few forms. The first is the bid-offer spread. This is a spread that describes where your broker is willing to purchase the asset you are looking to trade, compared to the offer which is where your broker is willing to sell the asset you are looking to trade. Your broker is trying to buy on the bid and sell on the offer to make money. The spread is the cost of trading. This spread needs to be incorporated into your trading strategy.

Some brokers also charge commissions. This is a fee on top of the bid-offer spread. The commission fee also needs to be incorporated into your strategy. Lastly, there is slippage. This is the amount the market generally moves on average when you try to trade. With liquid currencies such as the EUR/USD, the market has very little slippage. Emerging currencies pairs such as the IDR/USD will have greater slippage.

If you take your costs into account, you will need to potentially alter your risk management to generate the gains you are looking to achieve. For example, if the bid-offer spread on the EUR/USD is 1 pip, and you trade an average of 100,000 using leverage, the average bid/offer spread is $9 per trade. If the slippage is another pip, that is another $9 per trade.  If you are trying to make 20 pips per trade, and risk 20 pips, you really need to make 20 pips for every 18 pips you risk to incorporate the costs of trading.

Follow the news

Day trading is an activity that constantly requires up-to-date information about the market you are trading. You should be watching the news and following any potential events that can alter the markets you are trading.

A great way to evaluate what could occur is to look at an economic calendar daily. An economic calendar shows you the economic data that is scheduled to be released throughout the globe. It also tells you the forecasted value of the release, compared to the actual release once it is reported. Since the information you are following might be market moving, it’s important that you have a good source to follow the market. You want to make sure that the economic calendar you are watching is updated in real-time.

Create a routine

If you create a day trading routine which is followed religiously, you are more likely to be successful over time. Your routine could start in the evening after the market is closed. Look at the positions you have, and determine what are likely positions you might take in the day ahead. You can also devise new strategies, and test them to see if they work.

The next morning, you should check your positions and then look at an economic calendar. The next step is to read the news.  Determine if there is anything that could potentially change the positions you hold or could be market moving.

Remove emotions from your trading activities

One of the more difficult things to overcome is the emotional stress associated with trading. The idea of making money is terrific, but people fear losing money even more than they enjoy making money. To be successful, you need to understand that you will lose money trading. If you have a strategy that makes a dollar for every dollar you risk and your goal is to win 60% of the time, you need to understand you will lose 40% of the time. Just because you lose, does not mean the strategy is unsuccessful. Be patient with your strategies and eliminate fear and greed from your trading mindset.

You can improve your trading discipline by incorporating a strategy that evaluates costs, creating a daily routine, and removing the emotions from your activity. By implementing these day trading disciplines, you are more likely to experience greater opportunities trading over time.

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CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 70.8% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

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