Shay, otherwise known as Humbled Trader, is one of the few people who is honest about how it really feels like to day trade for a living. She started trading after seeing ads that promoted it as an easy side hustle that would make her quick money. Of course, things have turned out to be much more complicated, but nevertheless, she decided to stick around. In this interview, she shared the lessons she has learned along the way.

During the first couple of years of day trading, she bought multiple courses and DVDs in hopes of quick success. When it didn’t work as expected, she turned to chat rooms in search of peers and the perfect watch list that would make her profitable. When that didn’t work either, she left the chat room and joined another one. She did that multiple times until she had to face the hard truth. The chats weren’t the problem; the problem was in the way she approached day trading.

The first steps are the hardest

We often get inspired by someone before we dare to try something new. And at first, emulating your mentor seems like a safer path. After all, it’s always easier to follow someone’s way rather than create your own from scratch.

The first year Shay traded, she lost a bunch of money. By the end of the second year, she did a little bit better. Three years in, she finally posted a profit.

The biggest change didn’t come from a new course or chat room. Shay simply changed the way she approached day trading. Before, she relied heavily on lists prepared by other day traders and followed someone else’s guidelines. 

In the third year, she started making her own watch lists. She also turned off the chat room alerts. Relying on someone else’s opinions is ok at first, but at some point, you have to start developing your own strategy and trading style. It’s not that copying someone else’s model is bad; rather, it’s about the fit. If the day trading style doesn’t fit you, you’ll never be able to succeed and make real money with it. It’s a shoe that will always feel wrong no matter how hard you try to wear it in.

Developing your own strategy and doing your own research may sound overwhelming to a beginner. It gets easier with time and practice. Look at the trades you’ve had and analyze them. Check the watch lists and see how the tickers perform. You don’t even need to trade and risk real money in order to do your due diligence. Check other people’s trades, play with the paper account, and use resources such as news and SEC. Learning patterns is a great start, but patterns alone don’t fully reflect what really happens. If you learn how to notice a catalyst and analyze what it does, you’ll get a far better understanding of how and why the market moves. And once you have your thesis and find enough evidence to support it, you’ll have a strategy that’s customized specifically for you. I described my process in this post, and you can watch the video below to learn how Shay did that.

Risk management is a must

Another thing that helped Humbled Trader change her ways was risk management. After fine-tuning her strategy and incorporating fundamentals and psychology into her trading style, her win rate went up to 80-90%. However, she had to admit that having a sizeable win rate is still not enough to be consistently profitable. The reality of day trading is that one bad trade can wipe out weeks of hard work. That’s when she implemented strict rules for herself regarding maximum trade and day loss. She also developed some practices for specific situations such as not trading the ticker the second day if she was wrong the day before or using no more than half of the position. Again, this is something that each trader has to develop for themselves once they know how they trade. It’s based on psychology and behavior rather than the market, and it can’t be replicated. Instead, you have to gain practical knowledge of how things work and find the cause and effect correlation. You get a well-rounded day trading plan by combining fundamentals and psychology, and now your risk management is tuned to your own psychological responses and weaknesses.

And of course, risk management is what keeps you alive in the game. It’s what makes your account last as opposed to blowing it up on subprime setups and mediocre plays. It’s what protects you from mirages and helps you spend your time doing what actually produces income.

Learning to chose wisely

You have to be selective when picking the tickers to trade. You have to consider the risk, the gain, and the opportunity cost all at the same time. If you’re risking x, the trade should have the potential to give you at least 3x. That means that if you’re risking $50, you should be able to make at least $150 on it, if not more. If you don’t think that it’s possible, you simply don’t trade that stock and look for a more lucrative opportunity.

Scalping (getting 1x or lower profit) may seem easier and safer, but soon traders realize that their wins won’t cover the losses. Additionally, you have to count in the fees and expenses that come out of your account such as transaction fees, borrows, platform dues, etc. 

And if you’re under the PDT, you have to weigh each trade carefully before you jump into it. As a Canadian, Shay didn’t have to deal with it, but many US-based traders develop very poor habits if they’re not selective enough.

Adapt when it’s time

Normally, Shay prefers big caps over OTC stocks. However, 2020 has been a very different year.

Typically, big caps trend nicer, and there’s follow-through on the second, third, or fourth day. Additionally, the stocks hold the support and resistance levels way better. They are more predictable and logical.

Small caps are the opposite. There’s often no rhyme or reason to why a ticker moves a certain way. The stock could trend well one day, but the momentum may die out the day after. An OTC stock may spike pre-market, dip at the open, stay dead for the rest of the day, and then spike right before the close with no obvious catalyst.

Before 2020, the small cap market would be dead for the entire summer. That’s why many small cap day traders tend to blow up their accounts in the summer. There’s nothing decent to trade, so they’re forcing trades, slowly losing money one trade after another. But this year, everything’s upside down, and the market has been consistently active even during the summer. However, she still prefers the big cap market unless something is setting up really nicely in the OTC land.

When you’re trading both markets, you have to approach them as separate worlds. Tickers move in a different way, so that’s hardly an exercise for beginners to try and master both. But if you’re experienced enough in both markets, it may work for you just like it does for her.

However, you still have to remember to learn and adjust your strategy along the way. The markets don’t stay still; things move and change all the time. For example, Shay says that it’s been harder than usual to short this year. She also noticed a lot of irregularities in some setups that used to play out very consistently. For example, It’s not exactly normal for the stock to trade 5-10mil pre-market. There was even a ticker once that traded a billion (yes, with a B!) shares pre-market. Obviously, you have to update your strategies and adapt in order to keep on winning.

I know very good traders who have blown their accounts this year by not willing to cut losses and adapting to the new trends. At some point, the cost of ignoring these changes becomes so high that the hassle of reevaluating your strategy becomes the only way forward. If you see something “abnormal” happening several times on the market, you have to start paying attention. For example, biotech stocks were acting differently for the past couple of weeks, and that’s a big enough reason to change the way you trade the entire sector.

If you loved Shay’s interview and her philosophy, check out my review of her Humbled Trader course review! And if you have any comments, I’d love to read them below the video!