It seems every day some new and up coming superstar day trader (ok wannabe superstar day trader) asks me the same questions. It always strikes me as funny that everybody always seems to have the same questions when to me the answers just seem so obvious.

I will admit Ive been trading for a while now and Ive seen and read all the doom and gloom numbers about how 90% of all day traders bust their accounts in the first year. Why? I mean seriously why does this keep happening over and over again? I think it boils down to a couple of really simple but important rules that too many new traders either dont learn soon enough in order to save some of their trading capital. Or they dont really understand the concepts. Lets look at a couple of the major ones that you have to understand and have mastered before you can really hope to earn a living at this day trading game.

First of all and I know this will ruffle some feathers, I am not a big fan of demo trading accounts. I know some old time traders swear by them. But the way I look at it, is if you want to demo trade to understand how your platform works, how to place different types of orders etc, ok do it. But if you honestly believe that placing fake trades with fake money is teaching you anything of value well you are going to bust your account and likely sooner rather than later. Why you ask, well because when youre in a live trade and you have real money on the line you react much differently to being in a loss position than when its play money. Oh I can assure you as strong willed as you think you are, when that first trade moves in a hurry against you and you see the loss mounting I dont care how experienced you are panic does start to set in. So how do you deal with this and all the other head games that the market plays on you?

Rule number one, risk. Yes risk you never ever risk more money on any one trade than makes sense. Of course we all have different levels of risk tolerance that goes without saying. But if every time you open a trade you have your whole bankroll riding on the trade how many times do you think you can be wrong before your trading days are over and youre looking through the want ads again? I suggest you never risk more than 5% of your account on any one trade. That means whatever you are trading you set a hard stop loss that if hit would not eat any more than 5% of your capital. I know some people are even more strict and wouldnt suggest more than 2 or 3% but % is fine in my eyes.

I know of a couple of traders that dont think twice about putting 40 or 50% of their account on the line every time they open a position. Well all it takes is two or three bad trades in a row and poof they are finished, account busted. Lets look at some numbers just for the same of argument. I like to trade the S&P Emini, each point has a value of $50.00 so if I set a stop for 2 points, trading 2 contracts I am willing to risk $200. Using my rule it would mean that I want at least $4,000 in that account to open that trade. I know that might sound like a lot, but trust me on this its more than possible to have four or five bad trades in a row. Then what? Well then you dig out those want ads again.

Which brings us to most asked question number two, losses. Yes everybody has losses, I do, you will even the most experienced trader on the planet will have losses. The sooner you accept that and move on the better off you will be. You cant beat yourself up over having a couple of losses. Try not to look at them as losses, look at them as business expenses. They are just a part of doing business, nothing more nothing less. You could see a market that looks setup perfectly to make a move all the planets have aligned and sure enough you jump in and get your fill. Only to have the market turn the other way and take off like a Jack Rabbit, it happens far more often to us than most traders would like to admit. You cant take losses personally you cant try to trade your way out of them and you cant control when they are going to happen. So just dont beat yourself up, take your loss chalk up to a learning experience and move on. Sometimes there isnt even anything to learn. You made the right move everything looked good, the market just turned. It will do that more than you care to think about.

Most asked question number 3, whats the best system for trading? Well the best system for you is your system. Let that one sink in for a bit. There are as many systems out there as there are traders. They arent all perfect and what works for you might not work for me or anything else. The one thing I can tell you, there is no holy grail of systems. They all can be used by just about anyone; they just all need the personal touch of the user. A system working for a week or two or eight does not making it a winning system. All systems have their good and bad points; none of them seem to work in all markets. There is so much to choose from between systems and how to use them I think Im going to make that a topic for an entire newsletter all by itself. The bottom line about systems is to do what works for you, learn what you like. Do you like swing trading, scalping, intra daywhatever you like there will be a system you can buy to get you started down the right path while you figure out all the nuts and bolts.

I hope this has giving you a little bit of insight into a long term successful traders mind.

Check back as Ill post more once I have some time to put pen to paper a bit more. Take care and thanks for reading.