In our previous articles, we focussed on how you can use time, technology and knowledge to maximise your profitability. But is that all it takes to succeed in trading? The answer is a big NO! We’ve all heard that practice makes a man perfect and that is the last piece of the trading puzzle. There are no traders from anywhere around the world who were profitable from the word go. It takes repeated loses and several years of practice before anyone can become consistently profitable.
The ability to patiently practice and hone your skills will help you take that quantum leap towards becoming a full time day trader. Let us put it this way – if you do not sufficiently practice your trades, then day trading can become the easiest way for you to lose your money. Sachin Tendulkar did not become the Master Blaster in one day…just saying!
While it might seem boring to test your strategy for a few months before letting your money do the talking, it is imperative that you do that because it will give you time to understand the nuances of the market. At the end of several months of practice, you will be better equipped to judge the movement of the stock during different time frames, news or results.
So, how do you practise trading?
- Paper Trading
- Trading with virtual money
- Trading with a small capital
Paper trading literally means trading on paper. You can mark your entry and exit prices in a notebook and observe the profit or loss you are making. Sometimes while paper trading, traders might get carried away and mark their entry and exit prices to make it seem like they were more profitable. This is where it is important to develop an attitude of mindfulness. Re-marking your entry and exit while paper trading can give you a false sense of confidence only to pull the rug from under your feet when you trade with actual money. So, try to develop a disciplined method of trading and observe the reality of your strategy.
Trading with Virtual Money
If you want an ‘almost’ real time atmosphere of trading, there are several applications available online to simulate the same. You will be given an initial amount of virtual money with which you can trade with securities like you would do with a real trading platform. The price of the share will be the same in the real and virtual platform. Although trading with virtual money seems like it would be the same as trading in a real platform with real money, you need to brace yourself for a tremendous increase in pressure that you might feel while trading with real money.
Trading with a Small Capital
The logical next step after gaining some confidence in your strategy should be getting your feet wet by trading with a small capital. This is where the real fun begins. But this is also where you will be tested. Immediately after a couple of good trades, you might be tempted to put all your money into your system only to find that a breaking news has reversed the direction of movement of your stocks. So, play it safe and understand how your strategy should change during breaking news and results.
We recommend following the above mentioned steps in that same order before going all guns blazing on your trading account. After following those steps, one of two things can happen:
- Your strategy works as per your expectation:
There is no better feeling for a trader than when his/her strategy works as per their expectations. When this happens, it’s good to not be hasty and wait for a few more months of observation before using your actual money.
- Your strategy does not work as per your expectation:
The situation where your strategy does not work as per your expectation calls for tweaking and refinement. Take a step back, dissect your strategy to its very core and understand what went wrong. Accept that you are going to have to do a few more iterations of tweaking before you find the holy grail. Stay positive and you will be back on your feet in no time! Happy trading!