Lessons I learnt the hard way in day trading.
1) Think of how much you can lose before considering and imagining about raining profits each month. I initially used a trading system with win percentage of 33% and R:R of 1:4. It was a good system but the drawdowns made me doubt myself, so I had to move to a system with winning percentage of minimum 50% so that drawdowns were less painful even though R:R of 1:2 was only possible.
It is better to have a system with minimum 50% win from back testing as the severity in a loosing streak is reduced in this case.
probability of one loosing trade is 1/2 or 0.5 or 50%
probability of consecutive 6 loosing trade is 0.5*0.5*0.5*0.5*0.5*05 or 1.5625%
and the chance of seventh consecutive loosing trading is less than 1% so I can trade in a peaceful manner risking 1% each trade.
2) Any strategy that works in a trending market does not work in a ranging market and vice versa. This I had to learn the hard way. It is better to have two strategies, it is easy to have two strategies one for trending market and one for trading market. It is easy for anyone to have two strategies one for trending and one for trading, but the toughest part is having a method to gauge the market whether it is in trending mode or trading mode.
This was one of the toughest phases for me, once this is figured out loosing trades reduced considerably and I reached break even stage of trader. This is not even enough to profit each month from market. You will loose one day win another day and this goes on till you are ready to accept whatever market teaches you.
3) Next stage was distinguishing between sub sections of trending and trading market and equipping yourself to find what is the type of market currently.
Currently I use 4 strategies one for each type of market scenario.
trending:
1.Normal trend.
2.Fast trend.
trading:
3.Normal sideways.
4.Channel sideways.
5.Not tradable.
4) Higher time frame analysis.
This always helps, but I had difficulty in watching 30 min charts 5 and 1 as well in the same time, so I do not check higher time frame but use a method where I get a signal only when 30 min is trending, using bollinger bands. However, have noticed that most of the reversals happen at higher time frame support and resistance or higher time frame decision points. Currently, I use SMA(21) to take trades in the direction of higher time frame. This is one thing I need to learn and make sure to implement in my trading strategy.
5) Scaling in and out:
This is the one I still need to learn, but I guess will make a huge difference in my min monthly returns and max monthly drawdown. Once the things I am trying to implement in my trading strategy.
