I'm prepared for a major overhaul. I would like to know what are the conditions required for making a living out of day trading.
First and foremost, do not quit you job, at least not right away. I also do not encourage/advise people to do something differently to eke out a living. It is their own choice, to pick the right mode, the end result is to at least make ends meet,
I invest, but only in unheard of companies that have a good track record. I prefer to get into such companies, before they become headline news on CNBC, CNN or money talk. Actually, that is the time, I book profits on my investment.
I am not exactly a day trader, you can say that I am a swing trader, my trades last from couple days to couple weeks and in rare cases, a month or two.
I follow two very important rules when trading:
1) CAPITAL CONSERVATION - Depending on the capital deployed, I liquidate the position if the loss incurred is between 5-10%. This will ensure that I have 90-95% of the amount so it can be deployed on another trade.
2) Rule No.2 contains part of Rule No.1, that is CUT your loss short (so capital can be conserved)
and let the GAINS run.
I let the gains run on a profitable trade by using Stop Loss at important support and resistence levels (good working knowledge of charting is a must).
VERY IMPORTANT
Rule 1 and rule 2 should be enforced strictly, but only after a crystal clear exit point is fixed, even before you decide to enter a trade.
This does not have to be a specific value every time - it can vary depending on the situation.
I pefer futures as the value is not subject to time decay like options. I trade options in selected scripts since the lot sizes were increased last year.
If one wants to become a successful trader, then one must develop the guts to book losses every so often. In fact, 4 out of 5 of my trades end us in a loss. However, because of my two rules - The loss is either negligible or very minimal, while the gain on the winning trade is quite substantial - enough to cover the loss on 4 trades and still make money at the end of the week, month or year.
Good Luck
