Difference between starting, intermediate and professional day traders
Reading time: 3-5 minutes (849 words)
If you want to become a professional day trader that makes consistent profits in the long term you simply need to do what professional day traders are doing. That makes sense right? There is actually no secret why 95% of day traders fail and only 5% make money. It’s because 95% are not doing the same things professionals do. The next chapters of this guide will go in-depth in all the things professional day traders do to make consistent profits.
What are day traders?
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Actually, 95% of the people reading this guide will stop reading before the end. Are you one of the 5% that will read this complete guide? Once you have read this guide, it will all make sense. For now, you must know that this guide will not provide you with a strategy that you can use right away. See this guide as the foundation for your day trading no matter what strategy you use. It’s like all the ingredients you need to bake a solid cake but you have to determine what kind of cake you want to make.
We can divide starting day traders in three groups of people:
- The people that reads a few hours and start trading while they have no clue what they are doing.
- People that follow a strict trading plan learning everything they need to know before they start trading with real money.
- People that are in between both groups. They are close to becoming profitable but don’t want to spend the time needed to push them over the edge so they quit eventually.
You can already imagine in what group 95% of the people will start. Let’s not be one of the 95% and take a different approach. If you are serious about day trading then you need a plan. You need to learn many things about:
- Reading order books;
- Reading candlesticks;
- Learning how to read charts;
- Learning how market structure works;
- Learning how to draw trend, support and resistance lines;
- How to use volume to your advantage ;
- How to backtest and creating a trading journal;
- How leverage and stop losses work and where to place them;
- Learn how to create your own trading strategies;
- Learn about the four different types of indicators.
The difference between a starting day trader and professional is that the professional masters all of the above. They know how to read charts, use various indicators and how they work, how to backtest, create trading journals, know how to use trend and support lines to their advantage and have made a complete set of trading rules they follow every single trade. Pro traders only trade with a plan. They tested this plan thoroughly and already know it will make money before they pour in real money. To summarize:
A starting day trader
Learning to get basic knowledge of all the following topics:
- Read order books;
- Read candlesticks;
- Read charts;
- How market structure works;
- Draw trend, support and resistance lines;
- Using volume to your advantage;
- Backtest and creating a trading journal;
- Use leverage and stop losses and where to place them;
- Using risk management.
A intermediate day trader:
- Has basic understanding of all topics above;
- Is backtesting and forward testing strategies;
- Uses a demo account to test strategies;
- Applying risk management;
- Is about to enter the markets with real money.
A professional day trader:
- Has in-depth knowledge of all topics above;
- Uses funded accounts (not mandatory);
- Is creating his own strategy (not mandatory);
- Is creating his own indicators (not mandatory);
- Is creating trading scripts (not mandatory);
- Uses proper risk management.
How do the other 95% start their day trading journey:
- Putting in way to much money;
- Trading without stop losses;
- Using leverage the wrong way;
- Using 50 indicators of the same type;
- Not demoing their strategy;
- Not backtesting their strategy;
- Revenge trading (trying to win back lost trades);
- Not using risk management.
Day trading is a skill you need to learn. Learning all these topics and using them in practise will cost you at huge amount of time to master. Let’s start with the beginning. If you don’t know how to read candlesticks and order books you should start here first:
Once you are familiar with the concepts, come back to this guide.
Disclaimer: The information you read in the next chapters is not 100% right or wrong. Meaning that everything you read can be applied in different ways. For example, the RSI indicator can be used in multiple ways. The one mentioned in this guide is not by definition how you should use it. I would encourage you to find information about all the things I will discuss in this guide so you have an in-depth understanding about how you can apply all these concepts in your own trading strategy. It depends on the strategy you are using how you should use indicators, not based on how the indicator works by definition.