Day trading. So easy a caveman can do it.
Wait. That's insurance.
I remember the wave of day trading that swept the world at the turn of the century. It's tough to say that was the height of popularity, but it was like flipping houses before flipping houses was cool.
Admittedly, intraday scalping/day trading lost much of its luster over the past decade. A 10-year bull run with depressed volatility will sap that excitement.
But, it's back, baby!
And with it comes a new generation of scalpers. Generation has nothing to do with age, only experience.
Right now, Barstool Sports founder, Dave Portnoy, is lighting up Twitter with live streams of his foray into trading. Whether you care for him or not (I happen to find him entertaining), this is a fantastic opportunity to dive deeper into what lessons you can take away from his foray.
1. Goal Setting
While Portnoy's initial $50,000 per-day goal is a bit rich for most traders, having a goal/target is a big plus. Remember, scalping and day trading are not about competing with the market or comparing yourself to other traders.
Each day or each week, you come in with a target. When you hit your nut, the day is a success.
It's important not to confuse a target with your unrealized gains/losses statement. If your daily goal is $50,000, then that should be your realized daily profits.
It's easy to let trades roll overnight and quickly become investments. If that happens, you are morphing into a swing trader.
2. Know Who You Are Competing With - Yourself
Period. Done. Not the market. Not your buddy. Not some random person on Twitter.
3. Concentrate on a Small Number of Equities
There's a nature temptation to chase what's moving, not only week to week, but day to day even hour to hour. For heavy preppers, traders that spend long hours prepping setups the night before or the morning of, that can work, but it is usually more than the masses will do. It can also mentally overload new traders.
Find a few names to follow. Learn them. Live them. Love them. It will likely help you recognize patterns more quickly as well as get an understanding for the "normal" moves from that particular equity.
4. Accountability and Honesty
Whether he's aware of it or not, Portnoy has set up a great method for holding himself responsible and accountable for his trades.
Every viewer of his trading stream is potentially someone who will hold him accountable for his trading decisions. Based on the tweets I see, plenty of people are willing to do that, especially when he's wrong. That's the fickle nature of the social media beast.
Find someone who can hold you accountable and keep you honest with yourself. I wouldn't necessarily recommend strangers on Twitter or Instagram as the best way to do that, though.
5. Create a Trading Journal
Again, Portnoy may not have purposely intended to do this with his live-streaming, but keeping a trading journal/log can be crucial to success.
Write down wins, losses, how you were feeling, what influenced your decisions, etc. It will help more in terms of understanding your losses than your wins, and help you avoid those mistakes in the future.
6. Learn by Doing (aka Trader's Tuition)
Paper trading is fun, but you'll learn little. Begin with only what you can afford to lose. Nothing will compare to the experience and education of trading real money.
7. Have a Support System
This is different than accountability. Have a trusted source to ask questions, opinions, get feedback, and ignore the noise. All without the feel of competition.
I think Portnoy could improve in this area. There are too many random voices offering "support."
8. Understand the Liquidity of What You're Trading
Wide bid-ask spreads, low volume names, or stocks with high short interest can lead you to an early death. Be cautious.
9. Limit Distractions
Phone calls and constant deliveries or interruptions will wreck your trading. Don't allow this to distract you as your ultimate goal is trading success. I'm not sure what Portnoy's is, but from an entertainment standpoint, much of what he is creating is gold.
This somewhat ties back to number one. It's possible his main goal is more about entertainment than that daily dollar target.
10. Learn to Control Your Emotions - Cursing?
If you've ever been in a room for traders, this is normal. I have no issue with it. I encourage it (unless you've got kids around).
Emotional capital is precious. If that bank runs dry, you'll make poor decisions and lots of mistakes. Furthermore, if you can't control emotions like greed or accepting losses, you'll go on tilt someday and blow up your account.
11. Gut vs. System
When you first start, develop a system. Trading via gut comes from experience, not confidence or intuition.
The market will spend years upon years shoving your logic into the loss column. After you adhere to the previous 10 rules for a long enough time, you'll develop the ability to use your gut.
Honestly, your gut is nothing more than you subconsciously drawing on your experience.
12. Don't Go "All-In"
If you find yourself with no buying power, a margin call, or losing sleep at night, you're overcommitted financially. A precious few traders can side-step this, survive, and thrive. Unfortunately, most will wind up filling the trader's graveyard.
13. Don't Chase Flat
I'll say it again, "Don't chase flat." If you're down, you're down. If you followed your rules and lost money on a trade, so be it.
The next trade is not about making up those losses. The next trade is about following your system. If you make it back -- great. If you make some of it back -- great. If you go from red to green -- great. But whatever you do, do not let a previous loss dictate your goal for your next trade.
The biggest problem with focusing on chasing flat is you are putting yourself behind an 8-ball. You won't see the current trade objectively, but rather you'll focus more on where you were before the losing trade. Your current trade will be influenced.
Maybe you stop too quickly before you don't want the loss to become worse. Maybe you hold too long because your exit focus is on getting back to flat rather than following your system. Maybe you oversize the position and fall into the trap of rule 12. Whatever the case: DON'T CHASE FLAT.
I'm not trying to pick on Portnoy. Quite the opposite. The guy is a marketing genius and in terms of a new day trader, he has a lot more right on this list than wrong.
We all have to start somewhere and we all have room for improvement, but these rules will help you to succeed if you're serious about it.
Tim Collins provides options trade ideas each day on Real Money Pro, our sister site for active traders. Click here to learn more and get great columns, commentary and trade ideas from Tim Collins, Mark Sebastian, Paul Price, Doug Kass, and others.