1. Knowledge and skill of stock trading
The first and foremost characteristic that day traders need is trading knowledge and skill. Anyone trading stocks should read as much as possible about stock trading in general.
2. Adequate risk capital
Day traders must have access to adequate trading capital, which will clearly always be at risk. Day traders should be able to sustain losing that capital. They should never trade money that they cannot afford to lose. I do not advocate obtaining a second mortgage to raise risk capital or using retirement funds or credit card advances.
If a trader does not have adequate capital to purchase 1,000 shares of expensive and volatile technology stocks, then the trader is already somewhat handicapped. If a day trader opens a margin account with the minimum requirement of $20,000, then the trader can afford to purchase only 400 shares of expensive stock (that is, stock priced at $100 or more per share) for $40,000. If a day trader makes a correct buy and the stock goes up 1/8 point, then he or she would earn $50, which would only cover the trader's buy and sell orders commission costs.
3. Time to trade
The third element that future day traders must have is time. Stock exchanges open at 9:30 A.M. Eastern time and at that time serious day traders are at their trading stations waiting for the market to open. This is the most active and volatile time of the day on the stock exchange. Once a day trader takes a position, he or she is glued to the monitor, watching the stock performance tick by tick. With an open position traders are even reluctant to go to the bathroom. The bottom line is that day trading is a job and requires time and effort.
4. Ability to manage risk with a disciplined trading style
Day traders must have the skill to manage risk using a disciplined trading style. Since winning trades take care of themselves, the focus of risk management is on managing the losing trades. The trader must be disciplined to accept the fact that his or her trading decisions can be wrong, to recognize this quickly, and to get out with a minimal loss. This is not as easy it seems, and discipline becomes crucial.
