Breaking Your Day Trading Performance Barrier

By Lawrence

Breaking Your Day Trading Performance BarrierIn the third part of the series, I have covered the psychological makeup necessary to compete against the other traders in the extremely competitive field of day trading. Those foundations will help you making the right decisions both inside and outside of trading. After all, only 1% of the retail traders can succeed in day trading. It takes the best effort of anyone to get into the 1% winner circle.

In this article I will cover the techniques that can help one shorten the time it takes to day trading successfully. Let’s get started.

Note: This is Last Part of the eBook Is Day Trading For You

The Secret To Day Trading Success

All those talks about proper money management and follow your trading plans are not secret to day trading success. They are principles to keep you out of trouble only. They are similar to what kindergartens teach the kids so that they would not do stupid things to harm themselves.

Many believe that secret to day trading success is to find a holy grail trading setup and then they are set for life. It is a naive belief with many sorry endings. It is so easy to debunk that anyone having some common sense will know that is too good to be true.

The real secret to day trading success is to utilize the strength in your character and the skill sets you already have to create a trading method that fits both you and the market that you are going to trade. That also means you should absolutely not try to trade in any way that you are not comfortable with. For day trading, this means you are going to reduce the possible ways to trade down to a very finite number of combinations that you stand a chance to succeed.

Following are techniques that are tried and true to help you find out your best combination. These methods produce results but there is a catch. The catch is that they will work for you if you are truthful to yourself in your answers to the questions and experiments. You have to accept the truth of what you are capable of so that your goal of trading profitability can be achieved.

It may not be as easy as you think to be truthful to yourself. Self-deception is actually more common than most people believes. Sometimes people are not lying to themselves outright. They are just not observant of who they are and what they are. If you cannot figure out some of the answers yourself, you may want to talk to others who may know you better than yourself to tell you what they think about you and your situation.

Embrace Your Decision Making Limitations

To get the best trading results you need your mind functioning properly. But how do you ensure that you can get that throughout the trading days? What about keeping it up day after day of hectic trading? What you need to do is to identify your physical limitations in decision making and embrace them by not over using your brain. This in turn will help you make better trading decisions consistently.

First, know your speed limitation in making decisions on complex issues.

If you cannot make up your mind within seconds on your trading decisions. Forget about trading high resolution timeframes like 1 minute or higher resolutions (e.g. 100-tick, 5-second). You do not have what it takes to do that. Yes, training may help but it is better to focus on what you can instead of adding another obstacle to your pursuit.

If you cannot arrive at a decision within a minute most of the time, you should avoid day trading all together. A trading model pumping out signals will not help because the time it takes you to second guessing the model will ruin the system anyway.

Second, know your tolerance of decision making frequencies.

If you find making consecutive decisions difficult, like you are getting mental fog, getting frustrated easily, feeling tired or having unforced decision errors, you must reduce your decision making frequency. This change implicitly forces you to switch your primary trading timeframe to a higher one. You can experiment by reducing your decision making down to every 5 minutes. If that’s too much, reduce it further to every 10 minutes and so on. The intraday timeframe that is suitable for you will be the one that you can make sound decisions consistently without getting tired by the end of the trading day.

Majority of successful day traders do not glue themselves to the screen at all. All the great traders I know apply one form or another of thin-slicing the important moments in the markets they trade. It is a form of optimization. By optimizing the time and energy you spend, you can make the best decisions you are capable of at the more important moments in the market.

Know Your Mental Endurance Limitations

Restraining oneself from watching the market until decision making time can help reduce anxiety and indecision issues. Having the discipline to stay relaxed until the necessary decision time (i.e. when the bar on your chart is about to be completed and that a new bar is about to be formed) is great but not everyone can do that.

Once you glue yourself to the screen monitoring every tick, you mind cannot control itself in response to the changes in the chart. It is especially true when you have a position on. Your mind is working hard to make sense out of the information every second. You are practically setting yourself up to burn your brain out.

Not everyone can analyze a fluid situation dynamically like the chess grandmasters do. Reduce the decision making process to very specific conditions and shut out the rest. After all, you are not playing chess. You are not required to compete in trading from start to finish. You can pick the battle you know you have better chance to win. Do not even look at the markets when the prescribed conditions are not showing. That will limit your mind from random thoughts messing up your decision making process.

Some people are capable of highly concentrated real-time processing. But such talent has its limitations. Even if you are physically fit, using mental strength in highly concentrated ways every day will burn the brain out very quickly. This is what happen to many day traders working for trading firms as they are pushed to perform. It is not a good idea if you are planning to make day trading your career.

The solution is to utilize the talent by trading within a very short time window every day (e.g. just the first 10 minutes from stock market open). This allows the trader to fully focus within that short period of time making analysis and decisions on every tick. The rest of the day the trader can do other productive things. Most important of all, the trader is giving the brain time to recover so that long term performance is not jeopardized.

A friend of mind has been trading Emini S&P for many years. He only engages the market in the first 30 minutes. He is making a good living from that. He is a great example of someone who knows his limitation and stick to a plan to make day trading working for him.

Choose The Right Battlefield Given The Resource You Have, Not The Other Way Around

If you cannot accept natural stops based on swing extremes from the primary timeframe of the market you are compatible with, no matter what the reason is, you should avoid trading that market. It does not matter if the constraint is financial (i.e. limitation of capital) or psychological (i.e. pain tolerance). Until you can make yourself compatible, it is not going to workout in your favour.

If the constraint comes from financial limitations, you need to choose a different instrument or gather enough capital before you try to trade that market.

If the constraint is psychological, it is best to choose a different instrument.

If the changes result in consistent profitable performance, that is what you have to accept. Do not deviate from the plan. It is now a complete winning strategy that you can lean on because you are compatible with it. To improve performance, just increase position size slowly following sound money management techniques.

Once you have one fully working trading strategy on hand that fits you, it will open the door to the next level, gradually. Until then it is counter productive to make changes your method.

Personally I know several traders who started out trading stocks, moved onto trading index futures and eventually settled with trading crude oil. They are doing great trading crude oil and never looked back. I also know traders who used to trade bonds for firms and moved onto trading index futures on their own without success. Switching to trading forex finally do the trick for them and they never look back too.

Your Routine To Start The Day Matters

I can assure you that it is not superstitious to setup a fixed routine to start your trading day. The goal is not to get the cosmic luck on your side but in a way it does. For many new traders, this mindful practice makes all the difference in their trading.

Human feels more comfortable when things are done in an expected manner. Humans love routines and structures. By having a fixed routine to start your trading everyday, you are giving your mind time to settle in so that it will perform optimally.

First, let’s talk about the duration necessary for this preparation to start your trading day. It does not have to be a complex routine that starts from the time you wake up all the way down to the point you sit down in front of your trading desk. It does not work that way.

What you need is at least 30 minutes (and some people takes an hour) to prepare yourself for the trading day. Make that preparation as structured as possible. For example, someone may check the overnight quotes first, followed by a quick scan of the main headlines and then review the overnight charts while waiting for the morning coffee. This routine of tasks, is best organized in a way that you can go through them mechanically.

Over time this routine becomes a mental trigger to put you at ease and ready for the trading day. It is a powerful way to give yourself a stable initial condition so that you can perform more consistently.

Background Music Matters

Some people cannot focus without background music while others cannot stand any sound when they are thinking. It could be a habit coming from young age. It could also be something related to someone’s personality. It does not matter what the reason is. What matters is that you have to be consistent with the choice of background sound that you use during trading.

For a reason that is similar to having a routine to start your trading day, having relaxing, non-verbal (hence no information) background music can help some people to concentrate and perform better in problem solving related tasks.

However, some people may prefer absolute quietness as they are easily distracted by the slightest hint of sound.

You have to try it out yourself to figure out what you prefer. The key is consistency once you figure out your preference.

You Are Not Professional Trader So Stop Acting Like One

The normal beliefs dominating the professional trading world is that traders have to be picked with the right mix so that you can train them hard to get the best results. Since retail trading has been trying hard to mimic the professional side of the game, some of the concepts that are not applicable to retail traders are carried over and doing more harm than good to the retail traders. The mentality of extreme performance is one of those concepts that should be throw out of the door for retail traders.

I know this point of view is very controversial because it is not obvious why retail traders should not do what the professionals do. Well, if this copycat approach to mimic the professional day traders landing 99% of the retail day traders to the poor house is not enough evidence, I don’t know what is.

Professional traders have the logistics and resources from their trading firms. Professional traders who fail to perform are fired. But you cannot fire yourself as a retail trader, can you?

When you are a retail trader, do not buy the hype of trading like a pro.

Be a profitable trader should be way more important than that.

Remove Stress From The Trading Equation

Retail traders should focus on one and only one thing – the one thing that can optimize their chances to make money trading. This one thing is keeping your mind balanced, or if you prefer, keeping your head in the game, so that you can figure out how to profit from the markets in your own way at your own pace. Excessive stress is the number one trigger to imbalance a person’s mind thus it has to be eliminated from the equation.

All the techniques mentioned in this article helps reduce unnecessary stress during trading. In fact, many other good trading advices like having enough trading capital, control your losses and having a proper trading plan all have this quality of helping a trader to perform in a less stressful manner.

It is counter productive to force oneself to face the character weaknesses and other personal limitations just for the sake of trading since trading by its very nature is already an extremely stressful task for most people. Any such manoeuvre to "improve" yourself is the same as adding fuel to the fire.

As a beginner learning to trade, any added stress is another source of unforced errors in decision making. It does not only affect your trading. It also affect what you think the market is doing. Ultimately you will bend your strategy in a way to deal with the stress without noticing that you are making unsound decisions.

Knowing that you cannot perform well in day trading because you keep failing to make the right trading decisions is a sign that you need to reflect on your overall approach to trading. Maybe you need to focus on specific trading setups that you do not need to make as many real-time decisions. Maybe you need to filter out the market conditions that will make you stressful.

I am not kidding here, a buddy of mind absolutely hates trading breakouts and fast markets while I thrive in those. He makes a good living trading sideway markets (i.e. "chops") and I have to avoid those completely. There is really no fixed rule of what is the right strategy to employ for day trading in general. Everyone must find their own way.

End Notes

Many things I wrote in this series is not really new consider I have talked about these things to many aspiring traders for years. The various suggestions to overcome the barriers in trading performance are also something I have written about but scatter all around in many different articles. This series is an effort to organize the information into one complete introduction for those who wanted to learn day trading seriously.

Some people inevitably find that they are not compatible with day trading. It is not the end of the world. It is not that you cannot pursuit the dream of trading for a living. What it means is that you have to make enough sacrifice and changes to create the necessary conditions first so that you stand a chance to trade profitably.

Following the pointers I provided here will give you a head start. A better starting point means you can learn your way to successful day trading a bit faster and hopefully a bit easier. The road to day trading success, however, is still as difficult as it has always been.

So do your best and good luck in your pursuits of trading success!


  • Han777 February 25, 2016 at 3:38 pm

    It would be insructive to label the tree. I’ve focused on what I’ve expected to be the most profitable (during the first 2 hours of US trading) but the most difficult branch path — aggressive countertrend daytrading requiring many frequent real-time decisions. You define the challenge well. Is there a test for capacity for high intensity realtime decision making? I’ve also concluded that after ther first 2 hours one should shift to longer term intraday swing trading, about which I know less.

    • Lawrence March 12, 2016 at 1:23 pm

      It all depends on how aware you are of your mental / physical condition yourself. If you only find out after your brain feels like drained, it is already too late.

      The approach also matters – if you can offload many factors into mechanical filters you will not need to make as many decisions as someone who tries to determine everything on-the-fly.

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