I received an e-mail from one of my students that attended my 3 Day Live Risk Management Course. He asked an interesting question about a swing trade we had entered in the Morning Lab today. The trade started going in our favor and at one point was up about 10%. The stock price reversed later in the day and took us out at our stop exit, creating a cost that was well below our risk threshold.

He asked if it wouldn’t have been wise to take some or all the position off intraday and “preserve” a 5% profit.

It was a timely question as we have been discussing the importance of focusing on “PROCESS” over “OUTCOME”.

Two words from his email struck me; “this trade”. Those two words are “OUTCOME” focused. To me, it is utterly irrelevant if “this trade” makes money or generates a loss. I want to know if I am effectively executing my trading plan based on the rules, my experience and my training. That is “PROCESS” focus.

I know that if I focus on execution of probability based trade entries and exits (technical chart reading) and effective risk management, I will generate more profit than loss OVER TIME.


This one trade went against you and “could have” generated a little profit if you ignored the process relative to the time frame. If you are going to do that then change your time frame. That exit might have been appropriate for a day trade in which case you would exit the entire position and take all the profit (for the day). If harvesting profit every time you are up 10% is the goal, simply day trade only, and get out when and if you reach that target.

Fear of “losing” unrealized profit is one of the most common reasons that traders gravitate toward day trading. Yes, I said fear. Day traders as a group are chicken and some proudly proclaim it. They are terrified of every little move in the markets, they fear what “might happen” if they hold overnight and are scared of news events that haven’t even happened yet.

The tradeoff (pun intended) for choosing day trading to capture 3%-10% profits is that you will miss out on the 50%, 100%, 200% returns we often see in swing trades because you simply aren’t operating in that time frame.

To compensate for giving up on those bigger returns in swing trades, the day trader must dramatically increase the leverage by massively increasing position size (and associated risk) while struggling to keep losses to extremely small levels.  When you couple this with the significant overhead costs associated with large positions, you can see why day trading has the smallest return with the largest overhead.

Meanwhile, big money is typically found in swing trades and the huge money can be found in trend trades like the BA trade we are currently in (up over 650% after earnings in our practice account).

Why would anyone day trade? For some traders, it is a way to generate potential profits even when markets are slow, choppy or unclear. For others, it is an effective way to generate potential profit in the very short term without exposing an account to overnight headline risk. I will be covering the advantages and disadvantages to day trading as well as some potentially effective strategies and candidates in my Aug 9th online class “SPY the Market” available on the products page at www.OpenTradez.com.

Regardless of why a trader uses day trading, the ones who are good at it embrace the same process focused thinking needed in swing and trend trading albeit in a very compressed time frame. They attack when the trade presents itself in such a way that they have minuscule loss and relatively larger profit potential. The follow a system, execute it as flawlessly as possible, and they let the chips fall where they may. The one thing they do not do is conflate day trading with swing trading just as the best swing traders will not conflate swing trading with day trading.

Pick one strategy and go with it, but pick ONE. If it is a swing trade then it will either go in your favor for 3-5 days or it won’t. If you have correctly evaluated the chart, identified a high probability technical setup, selected an appropriate option and established the appropriate stop exit to manage risk then whatever happens after you take a position is, and should be, largely irrelevant until you observe a SWING TRADING exit signal or you are stopped out.

Successful traders are focused on the PROCESS, losing traders are focused on the OUTCOME.

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