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Protect Your Downside By Following a Clear-Cut Day Trading System:

New traders have a tendency to overcomplicate the trading process and make the same mistakes over-and-over again. They see other traders on social media boasting about their gains, so they want a piece of the action for themselves. As a result, they jump right into the market thinking “how hard can it be?” and proceed to trade randomly and irrationally. Their fears of being wrong, losing money, and missing out on opportunities are in complete control of their behaviors. After jumping from strategy-to-strategy, taking trades without signals, using massive position sizes, removing stop losses, and all kinds of other infractions that undermine their personal growth in becoming consistently profitable traders, they quickly realize that they have much less capital than they started with.

What is a Day Trading System - Establish Structure in Your Approach

Even if they miraculously made a profit during this short period of time, the process has certainly been emotionally-taxing and lacks common structure on a trade-by-trade basis. This lack of structure and consistency produces a lack of repeatability. There can never be a legitimate sense of confidence with such an erratic approach. How can you really trust your process if it consists of no clear structure and random behaviors? The only consistent factor there is inconsistency. Which is why having a defined day trading system is so important. If the system works, then it’s repeatable and you can have complete confidence in your approach, establishing a major piece of the framework required to trade without fear. And if it doesn’t work, then you actually have meaningful feedback available to you in order to adjust. By continuing to trade randomly, however, you can never acquire valid and useful feedback from the market.

Random/Undisciplined Trader vs. Structured/Disciplined Trader:

In the past, I’ve made all of the common mistakes that naive and inexperienced traders typically make. So I know exactly how it feels, both emotionally and financially. Below I’ll give examples from my own personal experience of how trades used to go when I was a random and undisciplined trader, as well as how trades go now as a structured and disciplined trader. The difference is staggering.

A Typical Trade as a Random and Undisciplined Trader

  1. Get excited and enter trade without any research (blindly follow a guru alert or hot stock tip)
  2. Start weighing, judging, and second-guessing my decision to enter the trade
  3. Begin feeling all kinds of negative emotions (anxiety, doubt, worry, disappointment, etc.)
  4. Lie to my myself about benefits of staying in the trade (confirmation bias)
  5. Remove stop loss to avoid taking a loss (loss aversion)
  6. Double-down on position hoping for a recovery
  7. Eventually take a gigantic loss
  8. Immediately regret trading this way (impulsively/randomly/irrationally)
  9. Promise myself to develop a more structured approach and have more self-control on my next trade
  10. Repeat all over again shortly after

A Typical Trade as a Structured and Disciplined Trader:

  1. Enter trade based on a specific signal/trigger from my system
  2. Feel balanced, calm, and composed knowing I have full faith in my system and my ability to execute it
  3. Exit trade based on a specific signal/trigger from my system
  4. Understand that one individual trade is meaningless. It’s all about performance over a large number of trades
  5. Repeat all over again shortly after

Notice how clean and straightforward the trading process is as a structured and disciplined trader. There’s no emotionally-fueled, impulsive behaviors compromising the validity of the system. There’s no biases, justifications, insecurities or bad habits clouding my judgement on a trade-by-trade biases. All impulses, expectations, and inconsistencies are suspended to allow for the mathematical edge of my system to play out. If I simply execute my system with as few mistakes and errors as possible, I know I’ll make money over a large number of trades. Best of all, what once was an excruciatingly painful experience is now fluid, smooth, and enjoyable.

Developing a Day Trading System – Start Thinking in Probabilities Instead of Possibilities:

As you enter the market, it’s easy to get distracted by all of the possibilities. There’s stocks, options, ETF’s, day trading, swing trading, long-term investing, and much more. There’s an unlimited number of paths you can potentially go down. But you simply can’t be a jack-of-all-trades day trader. By trying to follow every move in every part of the financial markets, you’ll fail to capitalize on any of them. Random and undisciplined traders embrace this world of noise and confusion, usually because it brings them thrills and excitement, but it comes at the expense of long-lasting, consistent trading success. If you truly want durable day trading success, you have to hone in on something specific (a certain setup, indicator, etc.) and develop a positive expectancy system.

Positive Expectancy

The key is to treat trading like a science experiment. You create a hypothesis based on technical and/or fundamental analysis (price patterns, trends, performance ratios, etc.) that you think will improve the odds of achieving a favorable result (a profitable trade). Every trade you execute is simply a data point, and after a large enough number of trades, you can use the overall results to calculate the effectiveness of your system. Constant strategy-hopping and other random behaviors will invalidate your data, never allowing you to figure out what works and what doesn’t. So it’s important to be consistent, otherwise your actions will only lengthen your path to success. It’s not about making one extremely profitable, unrepeatable trade. It’s about systematically executing a repeatable strategy that generates consistent, steady profits over-and-over again. Pinpointing probabilistic outcomes positions you for long-term success.

Coin Flip Example to Understand Randomness and the Law of Large Numbers:

Every individual trade has an uncertain outcome, but that doesn’t mean you can’t put the odds in your favor and let your edge play out over a large number of trades. Let’s take a fair coin, for example, and make a simple bet – I give you $20 if it lands on heads and you give me $20 if it lands on tails. As we already know, there’s a 50% chance it will land on heads and a 50% chance it will land on tails, so the probabilities are the same. This is a fair game – neither one of us has an edge. But that doesn’t mean short-term streaks or runs can’t happen. If we flip the coin five times, it’s possible it can land on tails all five of those times, resulting in a loss of $100 for you. This is a perfectly normal phenomenon, yet most traders will quickly stray from their validated systems after just a few losses in a row. Now, if we flipped the coin 1,000 times, the heads/tails split would be close to or exactly 500/500 thanks to the law of large numbers. In other words, our bet would prove to be even in the long-run. If we played enough times, neither of us would owe the other any money.

Now let’s slightly change the rules of our original bet – I give you $30 if it lands on heads and you give me $20 if it lands on tails. The probabilities stay the same, but you stand to make more when you win. Is this a bet you would hesitate to take? Because you shouldn’t. This should be a bet you’d want to take as many times as possible, over-and-over again. You should be willing to endure the short-term streaks of tails because you know with conviction that you’ll ultimately make money over a large number of bets. It’s inevitable that the probabilities will work themselves out over a larger number of flips. It goes to show that in the short-term, results can seem chaotic and random, but over the long-term, results have probabilistic and predictive value. And this is the exact concept you want to bring into your trading operations so that you can execute with confidence in the face of uncertainty. This example makes it clear that you don’t have to be right nearly as often as you think you do in order to make money – a modest 50% win rate can still produce solid profits.

Your Day Trading System, If Followed With Discipline, Puts the Odds in Your Favor:

When you embrace that every trade has an uncertain outcome, shed the feeling that you need to be right with predictions and forecasts, and have risk management measures in place to take controlled losses, you give yourself the freedom to act without fear in the market. There are really only two components necessary to be a consistently profitable trader: 1) a positive expectancy system, and 2) the proper mindset required to follow that system with the highest degree of discipline. This dynamic duo provides the simple structure for long-lasting success operating within the market environment. There’s no doubt that most traders make the entire process excruciatingly painful and confusing for themselves, but it’s no more complicated than that.

trading mentality quote from the disciplined trader by mark douglas

Once you develop a trading system with a mathematical edge, what your success comes down to is your ability to follow that system without error. This takes a high-level of self-awareness and self-control to accomplish, which most traders simply don’t have. But mindset is unquestionably the foundation of trading success. Even the best systems that should theoretically generate massive profits can be sabotaged by an impulsive, erratic, and irrational trader. The system is only as good as the trader executing it. If your mental framework is amiss, simply stop trading and focus on ingraining the proper attitudes, beliefs, and perspectives necessary to be an effective trader. The market isn’t going anywhere, but your money certainly is if you trade with a compromised mindset.

Try not to overthink it too much. Even some of the most simple, rudimentary systems can have a positive expected value.

Learn More in the Trading Success Framework Course

Written by Matt Thomas (@MattThomasTP)

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Matt Thomas

Founder of, Creator of the Trading Success Framework Course & Trading Paradigm Skool Community, and Intraday Futures Trader Using Auction Market Theory & Profiling (Volume & Market Profile).


  • Ann says:

    I have realized that I trade with my emotions high. And that is a terrible way to trade. Just following a gut feeling will lead us into the worse red numbers ever. So I should have a system in place. Thank you for your advice in this direction. I am excited about implementing more of a defined system as you are suggesting. 

  • Joyce Easton says:

    I agree with you that one would fail for becoming a jack-of-all-trades trader. This isn’t good at all. The financial market is full of different sectors of stocks, various time frame options, different methods like swing trading, long-term trading, day trading, and all sorts of trading you can ever think of, but one must capitalize on just one or a couple of these. Otherwise, it’s going to result in failure. I’ll always see trading as a science experiment now and implement a structured, consistent strategy. Thanks.

  • Erick says:

    As someone who has both lost and profited from trading cryptocurrencies I can confirm the steps you outlined in the “typical trade as a random and undisciplined trader”; it made me laugh because I saw myself in them.

    I am interested in learning to trade. I am aware that allowing our emotions to run the show while trading is a surefire way to lose money. A system is essential to success.

    I will keep referring to your writing as I continue my trading journey! 

    • Matt Thomas says:

      Hi Erick – I appreciate your comments. That example of the typical trade as a random and undisciplined trader is basically the way I traded for around two years when I first started trading. It’s kind of embarrassing to think back on because I don’t know how I ever imagined I could be consistently profitable trading that way. It was honestly a dangerous way to trade, and unfortunately it’s how most beginners go about it. A few times every now and then I would get lucky and make huge profits, but those big winners never made up for all the losses from trading randomly, impulsively, and irresponsibly. The big wins were thrilling, but the losses were even more devastating. It was a terrible rollercoaster ride to be on, both emotionally and financially.

      After a couple years, luckily, I came to the realization that my misguided attitudes and perspectives within the market environment were what was causing my negative results. So I finally started making some massive changes in implementing structure and discipline into my approach. Unfortunately for many traders, they’re never able to pinpoint or accept the real reasons for their failures or know what to do in order to fix them. I consider myself lucky for figuring out the right way to approach trading, especially from a mindset/psychological perspective, and I hope the information that I share helps traders avoid many of the missteps and hard lessons I had to personally experience firsthand in the future.

  • Gaurav Gaur says:

    Thanks for sharing your views on day trading. The strict rules of a disciplined trader can create fortune in the long run. I will certainly make notes of the characteristics of disciplined traders so I can develop them in my journey towards wealth creation in the market.

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