Final conclusion and next steps
Congratulations! You are one of the 5% that put in the time and effort to read this entire guide up to this point. You have what it takes to become a day trader. But before you can start making money, you have to put everything in practise. So how does everything from this guide fit together and how to proceed?
You’ve learned quite a lot in this guide. Everything you learned this far is the foundation of your trading journey. It doesn't matter what strategy you will use. Every strategy will follow the exact same steps laid out in this guide. Every professional day trader uses this foundation to be profitable on a consistent basis. In short, the steps are:
- Create or use an existing trading strategy;
- Getting to know all used indicators and other confluences;
- Backtest this strategy using proper risk management;
- Journal all your trades and determine if the strategy is successful;
- Trade a demo account on your preferred broker;
- Test until you know if the strategy is profitable;
- Proceed with real money (start slow).
Step 1: Find a trading strategy
If you are a beginning day trader, you probably don’t have any trading strategy yet. So the first step is finding a strategy that fits your needs. Do you want to stare at charts all day? Or only a few times a day? Or maybe only once or twice a week? Do you want to scalp (trading small price differences and be in and out of positions quickly)? First you need to determine how much time you want and can spend. Then look for a strategy that fits this timeframe.
Where to look for trading strategies:
The first task is to find someone who can explain everything about the particular strategy. The best way to accomplish this is by looking at youtube. There are many free profitable strategies you can use.
Step 2: Deepdive into everything the strategy is using
Once you find a strategy you want to test, take a deep dive in all the things this particular strategy is using. For example, if the strategy uses the RSI indicator then go read everything about the RSI indicator. You can find information about RSI in this guide but there are many websites out there that will provide more in-depth information. Do the same for every indicator your picked strategy uses.
Before deepdiving, you should know how to read candlesticks, candlestick patterns, how to draw support, resistance and trend lines and know what timeframes to use.
Tradingview offers a huge range of indicators you can use. Also, the community can create indicators. If you are using the free tradingview account you can only add three indicators on the chart. If your picked strategy uses more than three indicators then you should try and find combined indicators created by the community. But, if you are serious about day trading, just get a paid tradingview account. You’ll need it to backtest anyway.
Step 3: Backtest the strategy and journalling
Once you are familiar with the indicators you need you can backtest. Go back at least one hundred days and start applying the strategy. Write down every trade you make in your trading journal. At the end of one hundred days you should have a clear view about the performance. You can use your journal to learn from your mistakes and good trades.
Tip: Only backtest the sessions times you would normally trade. For example, don't look at indicators that pop in the middle of the night.
Step 4. Forward testing
Once you have back tested the strategy and the results are positive (reasonable profitable) you can start forward testing. Forward testing is simply trading on the current charts with a demo account.
Step 5. Demo account
It’s preferable to use a demo account on the broker you want to use. Learn how position sizing and leverage works before you start using real money. Tradingview paper trades do not have the option to use leverage. Also, position and contract sizes are different between brokers.
Tip: Setup your demo account to use the same amount of money you would use in a live account. If you are planning to start with $1000 in your live account then put the same amount in your demo account.
Step 6. Using real money
Only start using real money when:
- You backtested the strategy at least 100 days
- You forward tested the strategy for at least two months
- Only when both the backtesting and the forward testing proved to be profitable
Don’t forget there is a difference between using a demo account and a real money account. Start with a small amount (max $100).
Once you have done your backtesting and forward testing and both are profitable you are confident enough to use real money. Keep in mind to pick the best broker that fits your needs and has low commission or spread. Always start with small amounts of money. Once you are profitable with $100 or $1000 you can use bigger amounts or decide to go for a funded account.
The most common mistake 95% of day traders make is by thinking that using larger amounts of money you will get them rich faster. If you can’t turn $100 into $1000 you certainly can’t turn $10.000 into $100.000. So it’s pretty useless to begin with large amounts of money. If you can turn $100 into $1000 then you can safely use that same strategy to turn $10.000 into $100.000.
Although all the basics are all lined out in this guide, most times certain indicators and patterns can be read in many different ways. For example, some people use the RSI indicator by looking at the 30 and 70 levels while others only use the 50 level. Some people include the wick when drawing support and resistance lines, others do not. Always keep this in mind because when you are searching for strategies to use they might use the same indicator but in a different way. It's very easy to become confused as a beginner.
Step 7: Expand your strategy
Once you have a working strategy you will encouter times that the strategy is not working anymore. This is normal because markets always change. After you get familiar with the strategy you can add other things you learned along the way. For example, adding moving averages or RSI divergences.
How you think about this?