This article on Day Trading Futures is the opinion of Optimus Futures.
- Day trading futures is as much a mindset as it is a discipline.
- Developing day trading skills is as much a mental game as it is a matter of accumulating knowledge.
- Day traders respect “risk” and know it as intimately as possible, like a partner (whether it’s coming from the market, from oneself, or out of pure randomness).
When Day Trading is Gamified, Only the ‘House’ Wins
Day trading has been gamified and turned into a social media sensation with a bunch of “Gurus” that come and go daily to convince a new generation of the benefits of day trading. The art and science of day trading is lost to “lifestyle”, impulsive and FOMO type behavior.
This is not how one should be inspired. (Besides, have you seen these many of the gurus’ ‘live’ trading accounts? You would be surprised…hint hint).
As nice as it may sound, to the contrary, there is no such thing as “easy money”.
Day trading provides the illusion of a level playing field: you know…the market treats everyone equally, all you need is an internet connection, a trading platform, and a good methodology or system. No, the reality of the market does not quite work that way. To trade well, you need insane skills.
The mental benefits of day trading come as a result of confronting challenges while putting your capital at risk. Now, this doesn’t mean that your capital will benefit, but it does mean that your experience will. There is simply no substitute for experience, no matter whether you make gains or take losses (as long as you don’t completely blow up your account).
Experience in this case is real (not paper) transactions of buy and sell. Practical experience shows you that thinking logically would potentially be rewarded with desirable outcomes while being impulsive and biased depletes your resources and puts you either in the hands of “luck” (meaning, you were lucky to make a gain for such bad trading) or down the common pitfall that all bad traders fall into.
Day trading does not require only technical skills but personal attributes which are essential for complex decision making. Below is a list of characteristics you need to develop in order to be a successful day trader. If you do not have these skills yet, you need to work really hard on acquiring them.
14 Skills and Attributes Successful Traders Develop Over Their Trading Career
1: Quick Thinking | Getting Instant Feedback On Your Actions
Day-traders get immediate feedback on the decisions they make. Some day traders place hundreds of trades per day, and the results could potentially accelerate their learning ability as they learn fast and frequently as to what decisions work and what does not.
The situation that results in positive outcomes could be carried over to the next trading sessions. The same applies to the negative results that provide great feedback on your trading skills or personal attributes.
For example, if you are not logic driven, overly impulsive, and unable to analyze risk and reward under pressure, you likely won’t be able to succeed in day trading; you won’t acquire the necessary day trading skills to acquire the day trading benefits that’ll allow you to continue successfully day trading futures.
Day trading will teach you how important it is to control your emotions and to stay cognitively sharp. It also highlights the tension between cold decision-making and “gut” intuition, as both can conflict. Most importantly, day trading teaches you to think before you act.
2: Day Trading Futures Makes You Well Rounded
Day trading does not require you to be good just in one thing. Day trading skills are multifaceted and far reaching. Instead you become a person who is engaged in studies of risk and reward, logic, psychology, and mathematical probability–not in a theoretical way but in a pragmatic sense.
You can’t be the “best” in all these fields, and you may be better in one domain over another, but you still need to develop workable day trading skills in all these domains. If you are numbers-inclined, that brings a certain strength to the table.
If you are typically calm under stressful situations, that’s another personal skill that may serve you well. Know your strengths, but be sure you can at least have enough workable skills in all other necessary domains.
3: Day Trading Futures Develops Your Reasoning Skills
The majority of us think we make good decisions, but in reality, we make decisions based on poor assumptions or intuitions which are emotionally driven or uncritically biased.
Day trading futures is essentially a puzzle of variables and you have to apply logic to put all these pieces together.
You are up against the market, and you need to figure out sentiment, mood, direction and how to tackle it by placing transactions in the right direction.
Logic also tries your patience, because you have to wait for all the right conditions to “meet”. If you are patient, you may have an advantage over impulsive people who over trade, often afraid to miss out on the next move (FOMO). Ultimately, if you go about it diligently and prudently, there are many day trading benefits to be had.
4: Day Trading Futures Develops Discipline
There are no undisciplined yet successful day traders. Day traders are extremely disciplined and have learned to eliminate the destructive traits that prevented them to achieve day trading excellence.
You need to develop a set of very unique day trading skills to be a day trader, but it does not matter how skilled you get, if you do not have the specific kind of discipline to trade intraday, you will not get to the level of mastery in day trading futures without discipline and self control.
Day traders are not “trigger happy” but instead they wait for their setups and avoid price temptations. They avoid market conditions they do not understand, and they can stay out of the “game” for as long as necessary. They don’t criticize markets with the same old “the market is rigged”, “the market is wrong” (all of them excuses) and the “the players don’t understand the economy”.
In short, they don’t blame others for their own flaws (something that most people, trader or not, tend to do). All these reactions are emotional, and that is the one thing they do not wish to do. Instead they have self-control; at levels, most day traders only wish to achieve.
The social media-created image of Day Traders is an image of a glam lifestyle (that lifestyle is more of a “sham” image). In reality, day traders are not that dramatic and quite frugal. Day trading futures shouldn’t be thrilling; in fact, a proper trade can be quite boring.
5: Day Traders Focus On Long Terms Results
Day traders focus on Positive Expectancy. Their focus is not necessarily time-based–minutes, hours, days or weeks. This gives day trading a completely different outlook. They are not short sighted, and a profitable day or a losing day is not a reason to feel “happy” or “depressed.” In fact, their winners are associated with relief. But that could be an entirely different topic.
You could make money despite bad decisions (it’s called luck), but if you do not have the edge of positive expectancy, you will not come out positive in the long run. Your goal as a trader is to have Positive Expectancy over Negative Expectancy. This means that each trade as a single trade should not play a role in your success of failure.
This also means that part of the discipline above is to take each trade set up. If you have the set up or levels and decide not to be in the trade based on feelings, you will soon realize that not taking a trade has a cost.
In day trading, any trade missed can mean a loss if only through opportunity cost. Opportunity cost removes the potential for positive expectancy. When odds are in our favor, you take the trade!
The discipline of day trading teaches that lost profits are objectively the same as losses.
Not taking a trade when the odds are in your favor is the same as taking a trade when the trades are against you. Both are losses.
6: Day Trading Futures Makes You A Better Decision Maker And Risk Manager
As a day trader, you keep an eye on potentially huge risks. For example, you may think you have great odds in a given trade, and you may think of going “all in,” but logic and discipline tells you there could be a variable that you didn’t consider or an event that may bring your trading career to a halt if you are too leveraged.
Day traders do not put their careers at risk. They understand that winning is a function of many transactions, and not a periodic gamble.
Pros always keep at the back of their minds the one-off event they couldn’t anticipate. In light of this, they balance their approach. They know they can only control the size before the trade, and they trade according to that. Pros don’t have crystal balls; they don’t need them.
Professional day traders respect the market by respecting risk. They assess complicated situations and ask themselves these questions:
- What does the market think?
- What are other traders doing?
- What is the probability of the market going up or down?
- Am I being realistic now?
- How much do I stand to win or lose?
7: Day Traders Know How To Adapt to Different Scenarios And Be Flexible
Beginners ask professionals “How do you handle this situation? Or this situation..?” or “What do you do when…?” Yet, they don’t like it when they get the answer: “it depends”. The reason is that amateurs don’t understand context. Day trading futures without understanding context can be fatal to your account.
How so? Context makes you ask the question “How is this situation different?” Amateurs place the same importance on every scenario. Professionals with seasoned day trading skills always adjust their thinking and positions because the market is always changing. It changes volatility, ranges, direction, and bias.
A trader may get into a trade with odds in his favor while 5 minutes later the odds change, warranting an exit. They don’t just sit there and wait for their profit to turn into a loss; they know how to exit when the edge is gone.
Let’s use an example. A Pro day trader decided to short the market because the trend was bearish for the day, and then an immediate sharp violent trend to the upside began. The trader now needs to assess whether a trend has reversed or if stops were hit, squeezing out the “shorts.” Ask a trader one day and he may say it’s a short squeeze and another day he’ll say the trend reversed.
Again, the context of the market will dictate: Size of the move, how long the reversal lasts, and how it correlates to the price action that day. Day trading makes you adjust to new situations by evaluating them minute by minute. Day trading forces you to cope with a lot of change in a short amount of time.
8: Day Trading Futures Teaches You That It Is Ok To Lose (and to Not Take It Personally)
You can lose far more trades than you win. Either way, you can end up with a net gain or loss. Losing sessions and losing streaks are just part of day trading. If you need to break even faster than the market wants to give it to you, this could lead to more losses.
Successful day traders accept losses and continue to trade a solid, patient game: Not adjusting size or adding to losing positions if it’s not part of the strategy, and not letting their emotions or impulsivity take over their trading.
The difference between winning and losing can sometimes boil down to “paralysis effect” resulting from an inability to calculate the odds. They let their small losses paralyze them, preventing them from taking potentially winning trades. This is how they max out their losses and minimize their wins.
Professional traders know the average losing streak of their game and understand that while there are no guarantees, the market could also hand them favorable conditions that are in line with their method.
Short-sighted thinking and an inability to understand the fluidity of win/loss ratios, can lead to internal conflicts that can disrupt one’s trading.
The amateurs rely on luck, while the pros rely on cold calculation.
Pros do not take conflict personally. Sadly, many amateurs never learn this valuable lesson.
When you play against the market you could be “bluffed”, and its part of the game of day trading. How you react to these events will determine your success, because your mental capital is just as important as your financial capital. Day trading teaches you not to take self-destructive actions because these are the actions that drain your energy and remove your focus.
9: Day Trading Teaches You That You Must Plan
Amateur day traders either do not plan, or they do not plan well. They rely on their impulses and habitual behaviors. Professionals plan on many levels and across various time periods.
- Tomorrow’s day session
- The current environment
- The short term trend
- The long term trend
Day trading makes you think of contingencies. Not just one contingency, but multiple ones, as the market is fluid. This means that while prices can go up and down the rhythm of the market can change, and price fluctuations and trends can accelerate and decelerate (momentum).
Day traders consider a wide range of possibilities. Should something unexpected happen, they know how to react. Keep asking “What if?” way before it happens.
10: Day Traders Know How To Avoid Deceptive Market Moves
Fear and greed move the market, but inside fear and greed you find the concepts of FOMO (fear of missing out). Sit long enough in front of your screen, and during a quiet move, you will see the market spike up or drop just to return to normal. These movements–largely market noise–are deceptive, triggering emotions, making you think that an inconsequential move is an important one.
Learn to identify market noise on your charts and avoid it at all costs.
11: Day Trading Futures Makes You Competitive
If you decide to become a trader or investor, you have to be somewhat competitive. Day traders, especially, recognize that the main reason they win or lose is often a matter of competition. If you are not better than your fellow day traders, you lose, period.
Many traders do not know how to evaluate themselves and how well they fit into the world of day trading, so they may go for many years without knowing where they stand. It’s all in your P/L.
Competitive day traders gather as much information as possible because they know that day trading is, interestingly, an information management skill.
Pros win by taking advantage of uninformed players who rely on amateur decision making. Zero Sum Game (Minus Commission).
12: Day Trading Futures Keeps You Focused
Day traders can’t afford distractions. Distractions cause expensive mistakes, not only in Futures day trading, but in life as well. There are small mistakes that are part of the game, and there are large, foolish, and uncalculated mistakes can mean “game over” for your trading career.
One of the bigger mistakes is overreacting with a large position to a given event. If you made that trade with the right size, and made a mistake, it would result in a small and harmless loss. Making that same mistake with an overleveraged bet can often be catastrophic.
Focus makes you analyze your mistakes better. Never trade tired, unfocused and with the wrong frame of mind.
The right perspective teaches you to trade “by the book”, but it also gives you the flexibility to trade better when conditions are in your favor. And, when you have the right perspective, you don’t let anyone affect your opinion. Not a “guru”, broker, chat room, forum, etc. Perspective gives weights to information that affects your trading.
13: Day Traders Don’t Try To Predict The Future. They Prepare for and React to Events.
This is a concept that is hard for beginners to understand. “What do you mean you don’t predict? Are you not trying to predict the price?”
Price prediction is oversimplification of any type of trading. As in the famous words of Yogi Berra, “’It’s tough to make predictions, especially about the future’.” Obviously, this is because we can’t know the future.
Day traders prepare for and react to price action based on their odds. They’ve graduated beyond the simplistic way of thinking that an event is always a 50/50 (it’s not). Yes, prices can only go up or down, and it’s a 50/50 chance but what leads to the rising prices or declining price are not 50/50. For instance, at the start of a recession, where the markets are about to begin a new bear market, the odds of price reaching new highs in the near-term are less than 50% (obviously).
In the end, your method tells you the odds. When you stop thinking like an amateur day trader you don’t use terms like “maybe…” or “seems like…” you say “Odds are…”.
14: Day Traders Understand Risk And Reward
What‘s uniquely interesting about the markets is that they can reward “bad trading” for a prolonged period of time. It’s called blind luck. Lucky amateur traders might think they “got it”. They trade large positions, long and short, and they rake in profits. But sooner or later, these wins are transferred to calculated traders who might have not collected as much during these periods but played the same old consistent long-game while calculating their risk and reward.
In the long run, you can’t win the game of day trading without accurately assessing risk and reward. Another way to think of risk and reward is cost and benefit analysis.
Risk and reward is calculated on each trade, and on large numbers.
In day trading, your “win rate” can be low, but your positive net pay off can be more than your losses; a net profitable scenario. Again, you need to be a long term thinker, focusing on your profits and losses over time, not just on the number of winning and losing trades. Here is an example:
- Total loss per trade $50 occurring 40% of the time
- Total win per trade $120 occurring 60% of the time
- This means that for every dollar lost you make back
- ($120X0.6) + (-$50X0.4) = 72-20=$52
Do this 100 times and you win $5,200. Etc.
But what if you lost 65% of the time an average of -$60 but won 35% of the time an average of $120? Are those favorable odds? Yes, it is.
Here’s the calculation:
(probability of win * average win) – (probability of loss * average loss)
In this case, (0.35 * 120) – (0.65 * 60) = 3
Anything above 0 is considered profitable odds.
These are simple ways to calculate risk and reward. Sophisticated traders use these, adding additional metrics to give themselves an edge.
In our experience at Optimus Futures, most day traders fail to properly calculate risk and reward. They just expect that most of their trades to work out. If you want to go pro, you’ll have to get past this basic flaw.
Day trading has become a popular and accessible financial activity. This should encourage you, because there will be many players who think that day trading is simply buying and selling based on intuitions and feelings. Be different, be methodical, be disciplined, and be educated.
As we mention in this article, NOTHING beats experience, but these guides here along with the study of your methods should help you tremendously. With enough practice and experience, you can quickly move from being a dabbler (trading as a hobby), to a serious trader who has developed formidable day trading skills, to an independent pro.
Remember, day trading futures is not a matter of seeking perfection but a matter of exercising diligence in pursuit of excellence. Day trading futures benefits are attainable. But its pursuit comes with risk–so, as the saying goes, manage your risk and your profits will take care of itself.
Need assistance in developing a day trading strategy? Try reading our Comprehensive Guide to Futures Trading in 2020.
There is a substantial risk of loss in futures trading. Past performance is not indicative of future results.
Excellent article once more.
After trying several trading approaches, I also come to the conclusion that setups are fundamental when it comes to trading. That must be, from my perspective, the main trigger to take a position. For my part I use an indicator as confirmation. Often a moving average.
Of course, the size of your trading account determines the size of the positions taken depending on the level of risk you are willing to take. It’s money management.
In terms of time frame, I am more inclined to use the short term on futures for day trading, i.e. 1, 2 or 3 minutes. A different opinion on the subject?
My favorite is ES1, it’s the one with the most liquidity. This is important for me being based in the South Pacific in a time zone close to that of Australia.
I work with a stop, but one of my biggest challenges is when to take a profit.
I see two possibilities:
Either set a goal and exit the position, even if the latter continues to evolve in the direction of the initial trade … the question then arises … how to set the objective, according to what criteria?
Either use the same technique as the entry, a set up, a break in support or resistance, oblique or horizontal, confirmed by an indicator (typically a divergence).
Matt if you have any comments on this topic, I will appreciate it.
Second biggest challenge is concentration. I find that getting older I have more difficulties to stay focus on my screen. Any advise to get better at it would be most appreciated.
Also, it can be a silly question, because it depends on the size of your account, the stops and therefore the risk that one is willing to take, but typically what is the size of the positions of an independent trader making day trading on ES1? Or let me rephrase the question, based on your experience, what is the maximum position size that an independent trader can take with reasonable risk, if at all he has a large enough trading account?
I know that at certain times of the day the liquidity is not the same in the market. It’s less liquid when Asia starts trading, more liquid when London opens, and much more liquid when America wakes up. But for me being in an Asian time zone it can be difficult to trade during the US market hours.
Your thoughts on the subject would be useful to me, if you can help.
In any case, thanks to Optimus for these exchanges. Great work.
Continue the discussion at community.optimusfutures.com