March 18, 2021

How to mentally prepare for day trading

How do the pros prepare for a trading day?

Like virtually every endeavor, day trading also requires strategic planning and some level of logical reasoning before diving into the financial markets. Having mentioned the need to plan before executing trades, there are concerns about how to mentally prepare for day trading.

Before we share top tips for a profitable trading day, here is a sneak peek of the routine of one of the expert day traders at the day trader chartroom. So, make yourself comfortable and tag along.

It is all about the mental capital

How to mentally prepare for day trading you ask? Simple, you run 10 miles in the morning and drink your protein shake, lol. Just Kidding! But like someone who is into fitness, their daily routine is essential to their long-term success. The same is true for a day successful day trader. A successful day trader goes through the same routine every day to prep for the market. Their routine normally starts on Sunday when the futures market opens for the week.

My routine

This is how I prepare my day trading day. My preparation begins the day before for example if it is Sunday night I start by taking a look at the futures market. This normally tells me a little about the market before it opens the next day. I might even take a futures trade but we will leave that for another article.

I like to see what direction the futures market is taking before the week starting on Monday. Next, I like to make a list of stocks I might have traded during the prior week or stocks that made impressive moves. I will generally pinpoint one I will have front and center on Monday in case nothing else is popping off. I will identify levels on the daily chart and based on that I will formulate a plan for this stock.

Don’t underestimate a good night sleep

Next, I relax into the night and go to sleep early to allow 7-8 hours of solid sleep. This will allow me to feel rested and increase my concentration in the morning. I have traded with lack of sleep and feeling foggy, and all it served was for me to make mistakes. Mistakes that could have been avoided, mistakes as simple as buying the wrong expiration contract.

These are all things that you should learn during your trading education period. The day of trading has arrived, for this example, we will use Monday morning. I wake up and go through the regular morning routine of brushing teeth, etc. Once I am at my office I fire up the computers and begin to scan the markets using my scanners. I find a few tickers on my gap scanner; I will study the volume, float, daily levels, 200 day, and 50-day moving averages on a daily.

Patience is key

Once I have formulated my plan of levels to watch, I move on to the next stock. I usually do this until I have a list of 3-5 stocks with maybe 1-2 more on the back-burner list. The bell rings and I sit back and watch these stocks trade. I usually wait for one of my favorite setups to start to happen generally around 9:40 am and beyond.

I wait for these setups and if they do not show up I will not trade. Once I am done with my trades, I make notes of what happened on the day and I study the charts a little. Then I continue with my day managing my other businesses and keeping an eye on the market in case any A plus setups show up in the afternoon.

To sum up

So to answer the question, how to mentally prepare for day trading, the answer is, by creating a routine that works for you. To some, my routine might sound tedious, it might sound boring, but it works for me. Now, to become a consistently profitable trader, you don’t need to follow this schedule. What you need is to figure that routine yourself. You will find the routine that makes sense to you. But the important part is that you get into a routine that will set you up for success.

Top tips for building a winning trading plan

Having shared insights of how to mentally prepare for day trading, let’s quickly shift our focus to steps for building a winning trading plan. As the famous saying goes, failure to plan is planning to fail.

It’s almost impossible for one to discuss how to mentally prepare for day trading without talking about the need to have a trading plan. To become a successful day trader, you must have a written and realistic trading plan. Having a trading plan and sticking to it may not always win trades but it will boost your chances of winning and keeping losses low.

If you already have a trading plan, congratulations are in order because it takes so much effort, time, and research to develop a trading plan. However, if you haven’t gotten one already, we will share pointers on how to get started. As you can imagine, a trading plan will save you from making costly mistakes and set you on course to becoming a successful trader, and hopefully set you up for jaw-dropping ROI.

Here are pointers to help you get started.

Trading is a business: Treat it as such!

To avoid running into a brick wall or running your trading account aground even before it takes off, you must treat trading as a business. Since trading is a business, one should expect that it carries risks and you must prepare to deal with them at all times. There is more to trading than paying for charting programs and signals, reading a couple of books, opening a brokerage account, and immediately start to trade with real money. If you think that’s a trading plan, it is not. It’s a recipe for disaster and it will take long until it blows in your face.

When we day has a trading plan, it should be written in clear terms and it must be flexible. Speaking of flexibility, your trading plan must be subject to reevaluation. That way, you can adjust or fine-tune your plan to suit the ever-changing market conditions. Still on developing a trading plan, your plan must be S.M.A.R.T — Specific, Measurable, Achievable, Realistic, and Timely.

In addition to your knowing your risk tolerance and not jumping to the gun while executing your trades, other factors that will help you prepare mentally prepare for day trading include:

Setting your risk level — knowing how much of your portfolio you can risk on each trade considering your risk appetite and trading style.
Setting your goals — as we mentioned, create a SMART goal. One with realistic profit targets and risk/reward ratios.
Skill assessment — your ability to backtest your strategy and execute trades without a second hesitation.
Keep records
Have an entry and exit strategy and stick to it.

Last but not least, do your homework by researching what’s happening in the markets. A great place to start is to check what’s happening with index futures because they allow you to feel the pulse of the market because they are traded day and night.