The Mental aspect of Day Trading

Daily Trade Journal - 1/26/24

The mental game is where true traders seperate themselves from the gamblers who can do TA. The hardest part about day trading and especially scalping is mastering every aspect of your own mind. You have to be the master of your domain! When I had learned enough TA to actually start making money scalping, I found that the bigger hurdle was that my mind could be my biggest enemy.

Being hyper self aware of how you are feeling, mentally, emotionally and the reasons you're motivated for taking a trade, play a huge role in being a successful trader. You have to be hyper aware if your mind is starting to tire. You have to know what your exact motivations are for taking this trade besides just making money. If making money is the only reason you are taking that trade, then greed has taken over the mind and it is time for a break. If I find myself not keeping up with level adaptation and I am just adjusting trends because it's simpler, it is time to step away and take a break to rebuild the mental fortitude needed for trading. I find meditation or completing a small task outside of trading helps to reset the mind. Know what it feels like to revenge trade. If you are making trades just to get back to where you were or because you took some losses, it is time to just walk away sometimes for the day depending on the state of your mind.

The hardest thing for me to overcome mentally when I am trading is most definitely greed. If I don't have pre-picked targets for where price will reject, my greed always tells me price can go higher, or that price will bounce here so I should just keep adding to my position and it will turn around eventually. This almost always results in a loss and it is usually a big loss at that. This is why it is so important to be hyper vigilant about doing all of your TA and not trying to take short cuts because you will always burn yourself.

Trading as a scalp trader, has got to be one of the most taxing things on the human brain that one can undertake. One has to be able to process such a plethora of different types of information in split seconds. Then off that split second of processing all that information you just charted with the current price, you have to then make a split second decision that can have serious real world consequences to your capital. It can be the difference in making 10%, or losing 10% in a single trade in less than a minute. This happens regularly when you are scalping highly volatile assets, that are swinging 20-30% or more throughout the day. The loss of a 5 min or a 15 min origin level, along with a low time frame trend, can result in the assets price losing half of what it gained on the day.

Surprisingly if you have ADHD, I think the trading world was built for you. Especially those who are able to hyperfocus their ADHD. Usually when I am hyperfocusing on something other than trading, I can do it all day. However I've found that it only takes about an hour of hyperfocusing on trading to drain my brain of energy, to the point where I start getting sloppy and making stupid trades.

I have found that setting a target amount, that is a percent of your account, I use 2.5% of my total trading account per day. Then my second rule is that if I am up more than 2.5% after my first hour of scalping for the day, I will walk away for the rest of the day. Sometimes I might take one or two more trades if something looks like my perfect set up.

Learning to focus on how much I made in a percentage, instead of in dollars, made it easier for me to take the losses when I started scaling up my trades. I found that I had no problem going down 1 or 2 percent when I was using $100 in a trade, but when I started using $10k+ per scalp trade, 2% wasn't just a couple bucks anymore and that would rattle me.

Once I started thinking of everything in trading as percentages, I was able to break the fear that my mind had when it came to using real money. I was able to be super successful paper trading, but everytime I would use real money the fear of leaving money on the table or the fear of taking a large loss in dollars would give me bad anxiety. Once I stopped looking at my P/L in dollars, and trained my mind to only see it in percentages, my mind was finally able to break free of those two fears.

The last thing that I do when I trade for my mental game is I evaluate each trade after I make it, be it a failure or a success. Sometimes your successes are just dumb luck because your TA was off but your gut feeling told you to take the trade based on your faulty TA. You can rely on your gut instinct after putting 10,000hrs into education, charting and trading, but I don't recommend it until you've put the time in.

Failures can happen from your mental mindset. Was I feeling happy, greedy, irritated, depressed, or insert any emotion can be the reason for your failed trade when your TA is on point. The only way to find out what emotions you can or can't trade in is by evaluating these patterns by keeping a trade journal. As you get better and better, you will begin to see patterns in your success and failures. Which you can then address, bringing your winning trade percentage up.

Once you get into the 70% range and up, you can manage your trades and your money so that even if you have a string of losses, you will still end up on top. Take for instance you are only successful in 3 out of 10 trades. However you made 5% on those 3 trades which is 15% total. You then take 1% as a loss on the other 7 trades. That means you are still up 8%. If you know numbers, you know that even a strategy that has a 70% success rate, can still put a string of losses together.

The book “Trading in the Zone” by Mark Douglas is a must have for each traders library. He is the industry standard on how to be a successful day trader by getting in what the sports world calls, the zone! Where you can't miss a shot. In the trading zone, you have the utmost confidence in each trade and each trade comes easily. Pulling money out of thin air over and over again by exploiting volatility becomes like second nature. I can't recommend this book enough. Every successful trader I talk to has said this book is what made the difference in being in the 3% of traders who make it as a day trader rather than the 97% who can't and would do better with DCAing the indexes.

Let me know down in the comments what things you did regarding your mental game that helped you get to the next level in the trading game?