How to Start Day Trading for Beginners
Osman Sheikh7 min read·Just now--
Will it hit TP or go back hit my SL?
Will it hit my TP? does it matter?
To understand this quote, it will take you years.
Here, my concern is that will it hit my TP2? Because in my theory TP1 will get hit (most probably), there is no question about it. But TP2 I don't know. Let’s see, will hold it till the day’s end and will get you updated.
Here is the detail of the trade and why I took it in the first place with some basic data that will help you analyze it better.
Trading vehicle: Stock
Price: $100
Risk to reward ratio: 1:5 (Tp1) and 1:11 (Tp2)
Why did I take this trade?
It’s very simple but to make a grasp of it will take you years as there is emotional attachment like fear, greed, and the BIG DEVIL, the lord desperation (the urge to buy or sell right now). They will force you to take trades that are not on your plan.
The biggest urge occurs when your SL gets hit in the early morning in between the first 30 min of the day (that is why I don’t place a buy or sell order early, I wait for the first 30 min candle to close).
If you loose in the morning, your mind will not work as usual, and you will go berserk or destructive mode and take any trade that you can find just to recover your losses, and in doing so you will wipe out 10% or 20% or, for some people, 50% of the account in just a day.
Just think about it, how damaging the DEVIL is. The urge to trade. If you lose $200 from a $1000 account, will you be able to recover it? I don’t think so unless you are a PRO. Bust still, it will take you a whole week or more, to make that $200 back from $800, as you don’t have $1000 anymore.
This is the only devil that you have to fight, my friend, and it will never let you win. You can only withdraw from the battlefield to fight another day, or it will burn you alive.
So with that little understanding, let’s start the play.
This is the daily chart of the stock. What do you see?
It is going up. So the first rule is that you should not place a sell order, no matter how attractive it looks. Most likely, it will fail, as there are greedy buyers and fearful sellers. You always want to be on the confident side.
Do not think that the little sell off is a sign to go down even further, that is just profit booking or some manipulation. Those bulls will come back stronger and buy more quantity. They are just generating liquidity. So if you want to make money, do not sell. Only buy.
Here is my day trading strategy
Here is the plan, but can you follow it regularly? That is my biggest concern. Anyways, let’s have a look at it.
Look at the daily timeframe, if it’s bullish, then only buy. Selling is prohibited. And vice versa.
Come down to the 30 min timeframe and mark the first 30 min’s candle. Mark the high and low.
Wait for the downside liquidity sweep and close inside.
Note: The liquidity sweep candle must close inside. It can be green or red. It does not matter, but it must close inside, otherwise, you will not take the trade. If it’s green the chances are high, about 90%, and if it’s red, then it’s 60% (as per my understanding).
Why is There a Red Candle?
As you can see, the trade is going against me, and a red candle has been formed. But why?
Because of the FVG (fair value gap), as people are selling there, which is a valid point. But when the market is so bullish, then those FVGs do not work most of the time. But I still don’t know what will happen. If the FVG people are stronger then my SL will get hit. If not, their SL will get hit.
See the FVG data.
Look, brother, when you give it time, you will start to understand why the market is behaving like it, what is the reason? Mr. Market do not do anything randomly, everything has a pattern, and your job is to find it and master it with the risk to reward ratio in mind.
Part 2 of the day trading strategy
After you see the bar closed inside,
Put an order just below the first 30 min candle and take profit at the high and put the SL at the low of the 2nd candle that sweeps the liquidity.
And for God’s sake, never move the SL.
Why should you never move the SL?
Because you know nothing about the market and the safest place for SL is the day’s low or the day’s high. In the middle, like below the 30 min candle or 15 min candle, or trail the 5 min, all that is bullshit.
If you don’t move SL, you will make more money compared to managing every candle on the go. Plus, you will have peace of mind. The up and down of the market will not affect you emotionally. But if you want the thrill, then do it. It’s 10 times more addictive than riding a 350cc bike or a supercar.
Risk to Reward Ratio. How Much Risk is Good for Me?
That is the most important thing. Without it, no strategy will ever work. Follow these rules like a trading bible.
Never take more than 2% risk of your whole capital in a single trade.
If your account is $1000, then never risk more than $20. If you do, then know that your end is near. One time it will give you 20% profit ($200) in a day, and then the market will take all back plus your initial $1000 capital. So be a disciplined trader and never risk more than 2%.
That $200 is the bait. Don’t be a dumbass fish.
If you lose the first trade of the day, then in the next trade risk 1%. If you win, then risk 2% again. If not, you are done for the day.
The 6% rule
If you lose more than 6% in a single week. Don’t trade the whole week.
Save your capital and come back stronger next week and trade small. Risk 1% and try to make the lost money. If you recover all the money then. You are ready again to risk 2%. Otherwise stick to 1% or lower it to 0.5%.
If you lost again and your loss has reached more than 10% in a month, then stop trading for the whole month. It’s to save your capital and your mental health.
If you follow this rule, then know that good times are not too far.
But will it let you do that?
I highly doubt it. You will lose money. You will wipe up your account at least 2 to 3 times despite knowing these rules. And that is okay. Just don’t lose too much, like 10k or 50k. Start small with $1000 and know it will be gone.
Just don’t lose all the money in your first month. Try to hold to it as long as you can. That way you will not go mad.
I somehow held my first account for 4.5 months. I traded daily. The 2% rule kept me alive. Yes, I made mistakes and risked more than 2%. Sometimes, the risk has gone up to 5%, but still I am alive. So, know you will also make mistakes. But the fewer mistakes you will make, the longer you will last.
The Final Result. Will it hit TP or SL?
No TP or SL. Stuck in between.
Got only 1:1. Risked $20 and got $20. This is the biggest drawback of day trading. It will move but not today. FVG and Liquidity both won 1:1.
P&L Breakdown
Here is a simple P&L breakdown.
Day’s starting funds: $1000
2% Risk: $20
TP1 was: $50
TP2 was: $100
Gross Profit: $23
Net profit: $19
Now funds: $1019
You can not do anything if the market behaves like it. It is what it is.
My Historical Data on this Strategy
2 wins, 1 miss, and 1 loss. Let’s have a look.
1. WIN
Same strategy, simple and effective.
2. WIN
Got out a bit early at Double Tap (should have taken the TP).
3. MISSED
It did not come to my order. That is why sometimes jumping the gun can be profitable.
4. LOSS
My mistake, the market was bullish, as you can see the volume spike. But I still took it trusting the trend. (Still making those mistakes.)
Trend is your friend, until it’s not.
