Create a Day Trading Routine to Avoid Mistakes
Establish habits and routine to help minimize mistakes.
Mistakes happen in day trading. They often occur because too much information can come in all at once, causing you to become overloaded, panicked, or frustrated. Sometimes, mistakes occur during quiet/boring times when your guard is down. Then, there are random mistakes, such as hitting the wrong button—such as buy instead of sell—or entering a wrong position size. Even automated strategies can cause problems if there is a mistake in the parameters or a program causes a problem.
Before every trading day, it can help to take a few minutes to run through a pre-trade routine or checklist to help minimize errors throughout the day. Depending on the market you trade, you may wish to add a few additional steps to the ones shown. The process of running through a routine only takes a couple of minutes, but might save you some frustration and money.
Check Economic Calendar
High impact economic events can cause price spikes/gaps, creating significant slippage (a price change in-between the time you purchase and the transaction finalizes) on stop-loss orders. It's best to avoid being in trades for the few minutes surrounding high impact scheduled news events.
Check your economic calendar before trading, and note the high impact news-times. For U.S. stocks and futures, Bloomberg is a decent choice for news. For Forex, check out the DailyFX economic calendar.
You should always have an event calendar for the stocks you are trading.
If you trade individual stocks on a regular basis, check that the company doesn't have earnings or other announcements due out that day. The Yahoo! Finance earnings calendar works well. Be aware of these times, to avoid trading before announcements.
Launch your platform. Make sure quotes are streaming (not lagging or sporadic) and that the program is running smoothly. Most brokers provide reliable data feeds, but problems can arise. If the data feed is intermittent or seems inaccurate, don't trade until the issue is fixed. If it looks right, proceed.
Trading Correct Account and Contract
In MetaTrader and NinjaTrader (for example) you can log in to multiple accounts using the same platform. Make sure you are trading the correct account. Be especially vigilant if you practice day trading in a simulated account, and have live accounts. You don't want to end the day thinking how profitable it was, only to realize you traded in simulation instead of with real capital.
If day trading futures, make sure you are trading the correct highest volume contract. Be aware of expiration dates on the contracts you trade.
Write Text Notes to Yourself
On your chart, put text notes stating when high impact news releases are. If engrossed in a trade you may forget about one of these events, costing you dearly. Write it down on your chart.
If the event occurs later in the day, scroll over and put the text note near the approximate time of the announcement. That way you will see it when the time comes.
Triple Check Your Automated Strategies
Even if you day trade manually, you may have some automated orders. For example, in NinjaTrader and MetaTrader, you can send out stop-loss orders and targets the moment you enter a position. Make sure these stop-loss orders and targets are set appropriately.
If trading with a "robot" or scripts, make sure all settings are accurate and scripts are loaded before starting it.
Default Position Size
If you trade with a default position size, make sure it is set appropriately. Adding an extra digit to a position size could spell disaster. Dropping a digit means you trade a fraction of what you could have, and you miss out on an opportunity.
If you manually adjust your position size based on your entry point and stop loss locations, note your account balance before trading.
Proper position sizing limits the risk to a small percentage of account capital, such as 1%. If you have a $35,000 account, you can risk up to $350 on a trade. Keep this maximum risk in mind throughout the day (or write a text note on your screen) to remind yourself this is the most you can risk on one trade.
Make a quick assessment of trading conditions pre-market. Is it showing any volatility, or is it sedate? Are there any trends or specific tendencies you notice?
Such an assessment lets you know how to proceed, and whether you should be trading your system at all. This is especially important if using a subjective system—a system that varies slightly based on market conditions.
For example, in volatile conditions, you may have a larger expected profit target than on a day when there is almost no volatility.
Create A Quitting Time (Optional)
If you notice a time of the day you typically lose trades on a regular basis, write a note to yourself to stop trading at that time. Many day traders tend to lose money in the time surrounding (and including) the New York lunch hour if trading U.S. markets.
If you notice this tendency, try to stop trading. Write yourself notes, set reminders or alarms, and make sure to include it in your routine as a reminder every day.
Start Trading With Your Key Thoughts in Mind
You're set to trade. This process should help eliminate some mistakes related to position size, trading the wrong account or contract, trading during news or just not preparing your mind to trade.
As you start looking for potential trade setups, keep your key trading thoughts in mind. This will help keep you out of trades that are not in your trading plan, keep you alert and ready to pounce on good opportunities.