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Is Day Trading For You?

By Lawrence Chan

© 2014 by Lawrence Chan

You have permission to post, email, print and pass it along for free to
anyone you like, as long as you make no changes or edits to its
contents or digital format.

I would love to see that you make lots of copies to spread the words.
The right to bind this and sell it as a book, however, is strictly reserved.

You can find all the materials in this ebook, together with other trading related stuff at
The Misunderstanding Of Trading Skill Development
Visualization of Trading Performance Progression
Kick Start Your Day Trading Career – The Right Way
Breaking Your Day Trading Performance Barrier
About Lawrence Chan
Almost everything you read about trading, especially day trading, are written in the gung-ho
attitude. How to beat this and that market, how to become a successful trader, etc. None of
them addresses the fundamental issue - why trading is so difficult based on the fact that there is
such a tiny percentage (1%) of retail traders who can become successful in day trading.
Following articles are serious discussions on the subject with practical advices to put you on the
right foot to learn trading and day trading.
No, these articles do not reveal secret trading techniques invented by someone dead.
They are not about trading courses that will only cost you an arm or a leg claiming that you will
make money right after.
These discussions are about setting things straight.
They are about helping the individuals who want to become a trader or day trader by providing
them the tools to ease the pain of learning to trade.

The Misunderstanding Of Trading Skill Development
Many people have learned that top day traders can make a lot of money. The idea of being able
to day trade and forget about the markets by the end of the day is very sexy. It is also toxic like
an addictive drug to most of the people who give trading a try. It has driven many aspiring
traders to chase the dream of day trading for a living.
Now, what if I tell you that it is impractical to even imagine that you are capable of day trading
How about you have to be someone else in order to perform better in trading?
It may sound very cruel but I found that it is often next to impossible to convince newcomers
and inexperienced traders that the ways they trade are wrong. Wrong as in dead wrong and
their approaches will not lead to consistent profitability down the road. It is frustrating because
they seek for guidance yet not able to take criticism and advice seriously. One distinct feature of
trading success is its dominating dependency on a person’s character as oppose to analytical
skills and trading experience. This difference from other skills make trading unique in many ways
comparing to other career choices.
In this three part series, I will first explain the mistakes made by many traders in assuming what
the learning process is in trading skill development.
In the second part of the series, I will show you how to visualize your trading performance
development in a novel way that helps you understanding what it takes to improve trading
performance over time.
Last part of the series will focus on understanding the psychological hurdles in day trading and
techniques to overcome these barriers to better performance.
I find that it is much easier to illustrate many concepts related to trading skill development and
trading performance progress through graphics instead of words. The pictures should help you
understand much better what I have in mind on the subject.
This series is created to help traders of all levels in understanding the epistemology of trading
skill development.
Incorrect Beliefs In Trading Performance Progression
Following is the mental picture of what majority of traders believe when we talk about trading

Unluckily, the assumptions made by majority of traders about trading are wrong. Hence they
arrive at the wrong conclusion on the path they are going to take that will eventually lead to
profitability. The mental picture above completely misrepresents the trading skill development
One may ask, "How wrong can they be?"
Short answer to the question is that they are so wrong that they do not really stand a chance to
make money from trading.
Long answer is that if these traders can correct their fundamental beliefs about trading, or that
they are lucky enough to be one of those who started out with the correct attitude, they stand a
chance to trade profitably.
How about this, "Isn’t it possible to become marginally profitable without as much psychological
Short answer is yes. It also requires the trader to trade outside of the day trading timeframes.
Long answer is that majority of traders have to accept the fact that they are not capable of
managing their personal emotions and beliefs. They tend to keep making the same trading
mistakes with no hope of correcting them. If they are lured to day trade, they will lose their
shirts eventually. To quote one study on Asian retail traders, only 1% of day traders are really
profitable at day trading. However, 10% of short term traders (outside of day trading) can
achieve profitability quite consistently.
Now you have all the answers. If you are one of those who are not happy with your trading
results and refuse to accept the answers above. Read on.
Trading Is Not A Job
If you get a job, you will be paid for the time and effort you spent, but trading does not reward
you with a salary. You are rewarded with a profit only when you manage to extract that from
the market. This fundamental difference of trading from a job is ignored by almost everyone
who give trading a try.
Trading is a form of business operation. Trading is running your own business thus it inherited
the risk taking natural of running a business. You do not know when you are going to get paid.
You do not even know if you are going to get paid at all.
When you have no control of when and how you are going to get paid, it takes someone who
are comfortable with uncertainty to be able to handle the situation. Hence trading as a side
business works for those who has a regular job that pays the bills. It also works when there is no
worries about living costs at all for those who worked hard (or are fortunate) enough. These
privileges are great advantage to have for someone learning to trade but they are also deadly if
one day the security blanket is taken away.
In short, any person who are not comfortable with uncertainty of their well being or short term
future living condition, which is at least half of all the people who give trading a try, will very
likely fail in their pursuit. Since human as a species follows the normal distribution quite well
(unlike the financial markets), it is safe to say that at most 1/3 of all people learning to trade can
really handle uncertainty well under adverse conditions.
Note that it does not matter if a person has superior ability in handling uncertainty in absolute
terms. All it takes is that the person is better than majority of the competitions to win.
In another words, only 1/3 of all people who ever try to profit from trading will stand a chance
to succeed in trading.
Putting the numbers in perspective:
 1 out of 3 traders has the potential (i.e. comfortable in dealing with uncertainty) to
make money from trading (exclude day trading)
 1 out of 10 traders is profitable trading
 The chance of someone with potential in becoming a profitable trader is 1 out of 3
Day Trading Is In A League Of Its Own
Out of all the traders who give day trading a try, it is safe to assume many of them are
undercapitalized. Trading with less than sufficient capital is the main risk of ruin for most of the
There are several other factors specific to day trading that implicitly shave the chance of success
from the retail traders. The one that stands out is overtrading. According to the various studies,
it is the signature signs of traders likely to lose money.
Another well known issue with day traders is over leverage, maxing out position size with very
aggressive use of leverage. Such risky plays can blow out an account in just one trade.
Assuming each factor would cut off 1/2 of the traders from being profitable and that these
factors are independent. We can estimate that the number of traders left who stand a chance to
make money in day trading is immediately dropped down to 1/24 ( 1/3 x 0.50 x 0.50 x 0.50 ), or
about 4%.
Putting the numbers in perspective:
 1 out of 100 traders is profitable day trading
 1 out of 25 traders has the potential to make money from day trading
 The chance of someone with day trading potential in becoming profitable day trader is 1
out of 4
Not only is day trading much harder to achieve profitability in general, it is also harder in terms
of the chance to make it from having just the potential to being a profitable day trader.
I think I have convinced you now that day trading is one tough career choice.

Visualization of Trading Performance Progression
In the first part of this series, I have explained that majority of traders have a misconception of
the way trading skill is developed over time. That misconception leads to wrong expectations
from the progress in their trading performance. The wrong expectations contribute to driving
the traders in all the wrong directions to look for improvement in their trading skills and trading
I am going to present a much more reasonable visualization of trading performance progression
here. By understanding how traders really progress with their trading skills relative to their
trading performance, it is possible for the traders to work on their trading skills with much more
reasonable expectations and planning. That also opens the door to better chance of survival
until achieving profitability.
The Simplified 2 Dimensional Visualization of Trading Performance
Following is a simplified 2-dimensional view of trading performance progression.

The tree structure above represents the basic trading performance progression (and distribution)
as affected by various factors (each factor is represented by the branching from all of the
possible states from the last factor). The tree is fractal like with its dimension between 1 and 2.
Every person starts with certain qualities or characteristics that will shape how they perform in
any competitive activities initially. If you are born with strong frames and more muscle mass,
you have the advantage in becoming a better sportsmen than someone who are not. If you have
better dexterity than others, you will perform better in sports requiring better precision. Same
goes for trading, the qualities you bring into trading will determine your starting point, there is
no exception.
Look at the picture above, consider the end points on the tree structure as the different starting
points for different persons given the characteristics they have when they first learning to trade.
Some people, because of one specific personality trait, can help them start on an easier path
and save them lots of trouble from struggling to making money in trading. Some others, without
the proper combination of personality traits, would have to start from disadvantage positions
learning to trade.
For an experienced trader, the same illustration can be used to explain the reason why one
minor change with your way in interacting with the markets could significantly impact your
trading performance. You may think that one minor change is just fine-tuning of your strategy.
But if you can think in terms of the performance tree, you would know that the change you
made may swing you to a completely different branch of the tree. Thus, you may have put
yourself up for much better (or worse) performance due to lack of understanding how
important that particular component is within your original strategy.
The Better 2 Dimensional Visualization of Trading Performance
Now, let’s consider a slightly more complex visualization when more factors are considered in
one’s trading performance progression.

Refinement vs. New Direction In Trading Skills
It is not easy to figure out what components within the set of your trading skills or personality
traits can be refined. Those that can be refined are the ones that will not rock the boat, hence
they only affect the trading performance by a percentage deviation from your current approach.
Visually, they are the branches closer to the edge of the tree. Changes to these components do
not make much difference to the path you have been following all along.
Those factors that are closer to the starting point of the tree are the core factors which include
some of the fundamental personal beliefs of the trader. These factors do not really allow the
trader to refine them. A change of these factors will swing you onto an adventure because you
just back tracked away from a path that you have spent so much time getting comfortable with.
In essence you have switched to an almost completely new path that you have no
understanding at all.
Visually, we are talking about spending years of trading skill development along one side of the
tree (e.g. scalping is the best and I must scalp to win) and then all of a sudden, your core beliefs
changed (e.g. big money is made from the swings and now I have enough capital I have to join
the big boys club). All the prior trading experience developed before the change is not
applicable to the new approach at all. It is easy to imagine the blow to the confidence and
performance of the trader.
What We Can Learn From The Top 10% Swing Traders
When the trading arena is outside of the day trading timeframe, the top 1% performers are still
going to outperform the rest by a wide margin. But instead of the rest of the 99% all losing
money, it is now possible for the top 10% retail traders to be profitable. What makes it 10 times
easier to make money through swing trading?
One big difference between day trading and other forms of trading is the luxury of time. Day
traders have to make trading decisions quickly or whatever trading opportunity they identified
will be gone quickly. All day traders know that the difference of 1 to 2 seconds of your entries
could very well decide the outcomes of your trades. This means day trading is a pressure pot
where the traders have to make their trading decisions not just correctly but also quickly in
order to make money. No wonder the top 1% winners take all.
In swing trading and longer term trading, the influence of emotion and character issues that
determine the winners in day trading can be contained or eliminated through longer decision
making process. The longer time allowed for the trading decisions helps the traders by allowing
them to enforce their commitments and determination to follow through with their trading
plans. This luxury of time gives the top 10% swing traders a chance to utilize their analytical skills,
resulting in profitable trading.
In short, the performance statistics on day traders and swing traders prove that in day trading,
the traders’ personality traits play a dominating role in their chance of success.
Trading Skills Is All Relative
Remember that trading performance is not an absolute measurement of your trading skills. It is
all relative to the ones trading against you and with you.
A good example of relative skill influence is the first Internet dotcom bubble back in year 1999-
2000. Those who adapted to the environment to chase momentum of the high flyers performed
well until the bubble burst. Those who performed badly because they are conditioned to trade
range bounded market in early 1990s suffered. The best seasoned traders did not perform as
good as the retail traders because they have straight money management but they still pull off
good money back then.
Majority of those retail traders went broke afterwards but their euphoria during 1998 to early
2000 was the optimized trading method for the time. These retail traders performed best
among all the traders because their strategy and mentality was the strongest combination for
the environment at the time, relatively speaking.
At the opposite of the spectrum, even if you are trading as good as some legendary traders in
the past, your success is not guaranteed. As long as your peers are trading as good as you do,
you are not in the 1% of the arena you have chosen. Your chance of success will still be very slim.
In trading, you do not beat the market … you beat the others to collect the loot.
The Path To Day Trading Success Is All In Your Head
Many traders believe that if they find a holy grail trading setup they will be on the path to
successful day trading. As I explained in Having A Trading Edge Is Not Enough, that is not the
deciding factor for consistent trading success. Things are more complicated than that, as usual.
Majority of traders are not aware of the weight of their personal beliefs within their trading
performance. They were told to be resilient, to never give up and not to let their ego get the
better out of them. The catch is that even for the ones who can react correctly in adverse
scenarios, only those who can react the fastest or recover from setback the quickest can win in
day trading. The reason is that there is only so much time available and those who can deal with
the unfolding of uncertainties with confidence and speed win.
Trading firms love to hire young traders and pick out those who have the right personality
profile for tryout. They do not really care if these kids can make money on their own. They care
if they can make money for the firm given the structure and support provided by the firm. What
they are looking for are the rare combinations of top performers in these young traders so that
they can produce for the firm.
As retail traders, you either have what it takes right from the beginning to become a good day
trader or it will take time. Time is needed for you to mature enough to control your emotions, to
overcome your personality weaknesses that can damage your trading performance and to
discover the strength within your character that can be leaned on for winning strategies. Think
of the tree of trading performance progression again. Those who seek to become profitable in
day trading are seeking for a combination of trading methods and personal traits that will propel
them to the top of the tree.
That’s why some people can do it quickly while others take years. Quite a number of famous
traders reportedly took them 10 years or more searching before they became profitable
consistently. Of course there were a lot of dead ends they ran into. And of course there were a
lot of stupid pursuits. An observer can easily point out that many of these mistakes and time
wasting activities can be avoided.
I dare to disagree. My take is that majority of these mistakes made by these successful traders
are absolutely necessary in shaping them into who they are. They are the ones who learn from
their mistakes and continue to move on. This quality in their personality, together with their
perseverance, make it possible for them to achieve what they set to accomplish, success in
Goal Of Trading Is Often Forgotten
Traders who struggle with day trading should seriously think about the cause of their troubled
performance. If performing under pressure is not your thing, why force it when you can profit
handsomely from swing trading instead?
To pursuit day trading and winning in the game, one has to become the top 1%. Only certain
personality traits in combination of matching trading methods (including mechanical models)
will allow the trader to make good money from day trading the markets. They do make good
money indeed because they beat the other 99% retail traders.
For one to stay profitable in day trading over a long period of time, it takes the ability to adapt
to the ever changing environment quickly. This flexibility in adapting to the environment
requires yet another set of specific personality traits to achieve. Hence it is another hurdle to
overcome if you plan to make day trading a lifelong career.
The goal of trading is always just making money. If you even try to modify this basic tenet in
your dictionary, you will fail in trading. Since there are so many markets to choose from and so
many timeframes outside of the day trading domain, is it really necessary to compete in the
toughest arena knowing that you have much better chance to make good money elsewhere?

Kick Start Your Day Trading Career – The Right Way
In second part of this series, I proposed a new paradigm to think of trading skills development
and the related expectations on trading performance. By accepting the new paradigm, traders
can handle changes to their trading performances from a better perspective. As oppose to
beating themselves up for not doing as good as they expected themselves to be or jumping with
joy for sudden performance gain, they can take a step back and look at their progress much
more constructively.
In this part of the series, I will explain what can be done to properly kick start your day trading
career or rebooting it should you need to do so. Evidently, I could not finish the series yet, so
there will be a fourth one.
Ditch Your Pride
As mentioned in the first part of the series, trading is not a job. Aside from the ability to handle
uncertainties well, trading is also one of the activities that requires the person to be consistent
mentally inside and outside of trading. Everyday life behaviour and character weaknesses can
and do interfere with trading performance. One of the biggest enemy of trading, and in
particular day trading, is pretentious behaviour.
An example of behaviour outside of trading that has terminal effect on trading performance is
the habit of showing off. Take the example of young guns recruited by trading firms. Many of
these new traders find that being called a trader for a firm has many advantages. Feeling more
knowledgeable of the financial markets among friends and family is definitely one of the perks.
The show off behaviour outside of trading shaped their minds over time into inflexible and
arrogant attitude towards other people’s opinions about the markets and eventually the
markets themselves.
Make no mistake though, this is called pride. It is also where self-righteousness grow from.
When being obsessive enough it can turn into superiority complex. Any one of these mental
conditions can ensure the failure of a trader.
From Truthfulness To Humility
To achieve stellar trading performance, the number one priority is to be truthful to yourself.
That means you have to accept the fact that you would never know exactly how the market
works. Full acceptance of the truth is necessary because only from that starting point you will be
able to embrace uncertainty, accept trading mistakes as part of the trading cost and willing to
change your trading decisions immediately when evidence says so.
From being truthfulness to yourself, humility will develop. It is the power to see and feel what
others are thinking. Markets are the gambling dens of people expressing their opinions. When
you can see through what all others are thinking of, you will understand the aggregated
intention of the market with ease.
Humility being a requirement is unique to careers dealing with uncertainties. The markets are
forever changing because they are created by people. As the players changed so do the markets.
Although we know market participants pretty much behave in a similar fashion throughout
history, the markets they have created do not behave exactly the same. Hence there is no such
thing as certainty or 100% sure. Uncertainty is always a part of any market thus one must be
humble and observant all the time to stay on top of the trading game.
People coming from backgrounds of putting up a front with confidence to do their jobs are the
ones that are likely beaten hard by the markets. It is important for these traders to develop a
completely different mindset as early as possible in their trading. Without one, many bad habits
in trading will be formed that will be very negative for their trading performance.
Mindfulness In Centre Of Chaos
Trading decisions, trading model designs to overall understanding of a market takes an objective
mind with a balanced view to accomplish excellence. I have explained in Having A Trading Edge
Is Not Enough why it is important to recognize the edge in trading is yourself, not a particular
entry method or trading strategy. To be able to make sound decisions in a chaotic market
environment, mindfulness is a necessity.
Some people can gain balance in their minds through meditation. Some people find rigorous
exercise help them keep a clear head while trading. Some others, like many philosophers and
scientists in the past, love to take long walks and lost themselves in thoughts.
All these activities are tools that can help one gains a balanced mind. Just like any other
activities, it takes time for these training activities to produce positive effects on you. Until the
desired results become part of you, your mind will still be in a disadvantaged position during
trading. Thus it is important to stick to your routine, making it your habit, so that you can benefit
from your training.
Drop The Linear Performance Belief
For traders who have been struggling with their trading performance, the performance tree
provided us a clear picture why it is so difficult for these traders to have a trading breakthrough.
The answer lies in the fact that they are bounded at the lower performance level because of the
combinations of their trading methods and core beliefs. In order for these traders to get to a
higher level of trading performance, drastic changes to these combinations have to be made.
Not everyone can handle drastic changes well. Humans in general are not built for that. The
worst part is that the original trading techniques the trader has developed over a long period of
time will interfere with their new approaches in trying to improve their trading performance.
It is easy to arrive at the wrong conclusions on the reasons behind failure in trying out new ways
to trade. Traders often shut the door to better trading methods because they do not see results
immediately. Traders also confused that several trades in a row not making money is a sign their
new ideas are bad.
In short, they mixed up how they feel about a trading method with the evaluation of the validity
of a method.
To resolve this problem, traders have to learn to evaluation changes to their trading style or
methodology as if they are dealing with a completely new approach to trading. Such radical
approach may sound overkill but it is necessary as there is no way to tell if any changes made
are minor or not. Only after thorough investigation that one can tell from evidence what
components within a trading method are major (or minor) in importance.
To conduct complete evaluation of a trading method is not as difficult as you think. It is just
tedious. It also gets easier if you keep doing that all the time. The expertise you gain from these
thorough studies will add to your understanding of the market itself and what parts of a trading
strategy is more important than the others given certain design directions.
As a summary, no change to a trading strategy is just a refinement until it is proven to be true.
Clean Slate Approach For The More Open-Minded
For those who are willing to start from scratch learning about trading, this hardworking
approach is the one that can payoff quickest.
By reading historical data in chart format as they are with no indicators, no support resistance
lines and no coloring, you made an unbiased impression of history into your mind. The more
vivid you remember the historical data on an as-is basis, the better you are able to replay the
data in your mind with various trading methods applied onto the data. This is how objective
evaluation of trading techniques can be accomplished.
It is not necessary to be blessed with photographic memory. But you must work hard to make it
happen. Similar to the path in becoming a grandmaster in chess, the hard work on studying the
important chess games in the history is a necessity, not an option. The good news is that day
trading is much easier in comparison, you just need to beat the other 99% while being a
grandmaster in chess you have to beat the other 99.9%.
For those who have problem doing that, the alternative is to conduct lots of historical study
through the use of statistical analysis. By knowing the nature or the characteristics of the
markets you are going to deal with, you will not be blinded by the trading methods you would
like to use in the future. You will be able to see on a meta level if a trading model or technique
fits the data you are dealing with.
This path to accepting the markets with indifference is not as strong as the manual way but that
does not really matter nowadays thanks to the technology we have access to.
Since trading is not chess competition or poker tournament, it is not against the rules to use
your computer and analytical tools to trade. This use of computer technology to assist in
learning can deliver results quickly if the trader works diligently to explore the behaviours of the
market they are dealing with. The key to success with this approach is the ability to accept
scientific evidence over personal beliefs.
The Stubborn Ones Will Face Their Shock And Awe
Not everyone can change the way they behave. Humans are defined by their personalities and
sum of their experience. Changing oneself is a very difficult task because humans are created to
be stubborn with their identities. Major change in personality traits can only be resulted from
extreme circumstances. And there is no guarantee that one will change for the better.
For those who are not compatible with trading and in particular, day trading, sooner or later
they will have to face the disastrous consequences. It can be complete wipe out of their
accounts. It can be loss of tamper and ruin their relationships with their families. It can also be
loss of the will to live. Unfortunately, all these outcomes happened to many people who
attempted to trade and they can happen to you too.
When all hopes are lost, there is a choice to make. Learn to accept your failure and
consequences is the first step to get yourself out of the mess. Essentially you are forced to go
back to step one to Ditch Your Pride. At this point, you may not have a chance to trade anymore
but it is also not necessary a bad thing.
There are famous stories of dramatic personality change in the trading world. Those traders who
blew their trading accounts successfully changed their way of thinking. Eventually they managed
to make it all back after their disastrous experience. Success stories like that are moving because
they seldom happen. The usual outcome is that the person is broken mentally and financially
with very slim chance of recovering.
Something one has to remember is that if you are pitted in such a situation or planning for a
comeback, your chance of success does not lie in your ability to accept your failures. Many
people can do that. That is the minimal requirement for a chance to turn things around. The
truth is that there is really not much you can learn from understanding your failures because
there are so many ways to fail in trading. Knowing what not to do is not enough to turn you into
a profitable trader.
To successfully turnaround the situation, the key is to go beyond acceptance of failure and dig
deep for those moments where you were able to make money from the market. Identify those
experience that you win by skill, not luck. Those are the most precious things you learned from
the market that you know can be done because you already did. If you can keep repeating only
those good trading moments, you are one step closer to trading success.
At one end, not everyone starts out with the right combination of personality traits and beliefs
for day trading. Those who are able to adapt to the right mix of personal beliefs and characters
will eventually become profitable. Even if you are talented in trading, it will still take time to
sharpen your skills and shape your core beliefs properly.
At the other end, not everyone can trade successfully, let alone day trading. Although it is
possible to force trading performance to happen even if you do not have the personality traits
mentioned here, the chance to success is slim and the consequence of such daily struggle
against yourself will eventually lead to bigger problems with health and other issues.
Do not make trading a struggle for the rest of your life. If you cannot accept what trading
requires, don’t do it.

Breaking Your Day Trading Performance Barrier
In 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.
This is the final part of the series. 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.
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
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 work out in your
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 counterproductive 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 every day, 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
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
It is counterproductive 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 sideways 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!

About Lawrence Chan
Lawrence Chan has been a professional trader for well over 20 years. He is known for his
research work in custom market breadth analysis and advanced analytical techniques on index
and forex markets. His breakthrough research in market breadth analysis is incorporated into
the trading platform NeoTicker from TickQuest Inc.
Lawrence has numerous articles and trading models published in trading-related magazines and
influential financial websites like Futures, Technical Analysis of Stocks and Commodities and His eBook, Special Theory of Price Discovery, has profound impact in the
financial industry as it revolutionizes the understanding and predictability of price movements in
financial markets.
You can find his daily musings at his blog
During trading hours he likes to share his thoughts at his website's real-time chat room. You can
find his eBooks, research reports, and daily market commentaries at
About is an online service offering professional trading analytics and trading
signals on forex, index and commodity markets. By providing its members with quantifiable
trading edges and comprehensive research materials, assists traders making
intelligent trading decisions and augments their trading skills through advanced real-time
trading technologies.
More information available at

Emini S&P - An index future contract based on the stock market index S&P500. Those who trade
this market are trading the fluctuation of the index value.
Forex - Short form for the foreign exchange markets. The exchange rate between 2 currencies
like US Dollar and European Euro are tradable.
Indicators - Those lines people put on their charts based on calculations from the price data
Leverage - Traders often trade without putting up the full value of the contracts or shares.
Instead, they put up a fraction of that value as a margin to hold their positions.
Support Resistance - price levels that act like invisible boundaries restricting the price
movements in a market
Swing Extremes - Price extremes (peaks and troughs) that stand out in a chart within a particular
Timeframe -The duration for which each price bar represents on a price chart. 1 minute
timeframe is higher resolution comparing to 5 minute timeframe because there are more
information disclosed.
1. The Cross-Section of Speculator Skill Evidence from Day Trading by Brad M. Barber, Yi-Tsung
Lee, Yu-Jane Liu, Terrance Odean
2. Do Individual Day Traders Make Money? Evidence from Taiwan by Yi-Tsung Lee, Yu-Jane Liu,
Terrance Odean
3. The profitability of day trading: An empirical study using high-quality data, Investment
Analysts Journal, by Doojin Ryu
4. Do Day Traders Rationally Learn About Their Ability? by Brad M. Barber, Yi-Tsung Lee, Yu-Jane
Liu, Terrance Odean
5. Fear and Greed in Financial Markets: A Clinical Study of Day-Traders by Andrew W. Lo, Dmitry
V. Repin, and Brett N. Steenbarger
6. Enhancing Trader Performance: Proven Strategies From the Cutting Edge of Trading
Psychology, Wiley, by Brett N. Steenbarger