You wouldn’t embark on our day trading journey if we thought you were going to lose money.  I think only the most masochistic of gamblers gets into day trading specifically to blow up their trading account.  After only a bit of experience, virtually any trader realizes losing money can happen even when that is the last thing on their mind.

So today, I want to focus on the day trading version of a classic baseball pitching by saying – “Don’t give up the big inning.”  In baseball, the pitcher has a unique position in that every ball on the defensive side goes through his hands on the way to whatever the result may be.  He has “the game in his hands” and his supporting cast of defensive players can only watch and react to what happens after the ball leaves his hands.  I propose that YOU are just as the pitcher in the ballgame of day trading.  In baseball, a pitcher can lose composure or get tired. Pitches that were hard to hit before now sail from the mound to the other guy holding the bat.  It is assumed that on any given day, a starting pitcher is allowed to give up SOME runs, with the based on the assumption that his team’s offense will, in turn, be able to score against the rival team.  The game depends on the pitcher not giving up too many runs, especially in one inning. He must make sure to give his offense a good shot at not only equalizing but putting more runs on the board leading winning outcome.

In day trading, this concept is similar. You as a trader WILL lose some trades, but the goal is to not give up so much that your wins can later propel your trading account further than the losses then pulled it down onward to a profitable outcome.  But, so often in day trading, as in baseball, we give up “the big inning”.  In baseball, a pitcher that gives up five runs in an inning, not only creates a significant deficit in actual runs but creates a psychological gap for his teammates.  Not only do they have to get on base, but they have to get A LOT of guys on base, just to “break even”.  The same thing happens in day trading.  One or two losing trades creates a deficit, but nothing a good win or two can’t fix.  But when we start losing a lot of consecutive orders or lose big amounts due to over-risking trades, we create not only a significant financial deficit that’s hard to overcome but also a psychological wall that seems overwhelming. You start trying to make back too much on each trade, just like batters start working to hit home runs at every bat. Instead of piecing base hits together to score, they forget the plan and make stupid mistakes.  These types of actions create a dangerous situation in baseball and day trading.  In both cases, it prohibits a steady approach to gains.

So, how do you know when to simply “pull the plug” and stop day trading? There are experiences I have had in my years as a trader, that now become red flags when I see them:

• Double-Down:  Oh so you lost a couple of trades.  Maybe it’s a 10 points total.  Now you think, I can make that back with a 5 point gain if I just double my trade size.  This approach is dangerous and a slippery slope. It just takes one loss with the double-sized order to make that relatively small divot in your trading account into a much bigger hole.  Then, you find yourself thinking “I NEED to double this next one just to make the money I just blew back.”  This thinking if not put in check, will eventually and most certainly blow up your trading account.  Whenever you start convincing yourself into ignoring your normal risk, you should realize that you are now gambling with the very real possibility of blowing your entire trading account.

• Heart In Throat Day Trading:  When you feel the adrenaline, it’s probably time to stop.  Yeah, that loss on the books is painful, but how sharp are you thinking at the moment you are pacing around, praying that THIS trade just wins, pulling your hair, and feeling that dry mouth?  Day trading takes composed confidence to make the best decisions, and if you find yourself emotionally wrecked or “amped up,” you should just close your orders and take the rest of the week off. Trust me, the loss you just took may look bad, but it’s not as bad as blowing the whole trading account emotionally day trading to get that loss back. If you feel sick, or scared, you should not be day trading. Take some time, cope with the booked losses, and come back when you are ready to do analysis and real day trading.  It’s stupid to say there is no emotion in day trading, or that there shouldn’t be.  You’re human, I’m human, we have emotions.  You just can’t let them get the best of us.  Don’t trade beyond your “comfort zone”.

• Tunnel Vision:  This is similar to the last one, except in this case you simply can’t take your eyes off the price.  Need to go to the bathroom? Fire up the tablet so you can take it with you and watch every tick of the market.  When you find yourself so glued to the trade that you can’t even look up, you are probably in the danger zone. You aren’t doing your analysis anymore which means you can’t make a decision.  You hang on every tick, every move of the market and become like a deer in the headlights.  If you find this happening, CLOSE the trade and take a break!

• No Rest for the Wicked:  If you find yourself staying up WAY later than normal just so you can watch your trade, you are probably in the danger zone.  Sure, it’s fun to look at a winner run.  But often, you are staying up to watch a trade that’s losing agonizingly tick lower and lower.  If you are doing everything correctly, you should know exactly what you are risking before the trade even starts.  Consider that money GONE.  If you win, then you have done very well!  If you lose, well, you’ve already accepted that.  Either way, you shouldn’t be wrecking your sleep schedule just to watch a trade.  If you are, you are probably risking way too much, or wrecking your rules.

• Off The Rails:  You have completely thrown out the rules.  You are taking trades on every turn of the market.  Adding to a small winner, then seeing it start to lose, so you add more.  The more you trade, the deeper it gets.  Soon, every tick begins to affect floating equity severely, and you feel like you HAVE to do something!  When our rules start to slip, our ability to make money does as well.  The further you go from your plan, the more likely catastrophe awaits you.

All this can be avoided very easily!  To ensure none of the above situations ever describe your day trading:

1. Create a Trade Plan
2. Stick To It
3. Create day trading Limits
4. Stick to them!
5. Know yourself
6. Learn Your System
7. Stick to it!

Beautiful day trading begins with a great trader.  By focusing on yourself and how you approach the market, you will find that the desired gains come much faster than depending on some external force like the system, market, mentor, etc.  You are in charge!  Make sure you trade when you are up for it, and you get out of day trading for the day/week/month when you aren’t.  Keeping yourself on the right side of your emotions will keep you on the right side of the trade.  Remember, the point of all this is to prevent giving up “the big inning.”

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