“Day-trading is hard work,” says Mitchum. “The best traders I know have a win-loss ratio of around 55% over time. The difference is that they have developed skills to maximise profits and minimise losses on that small percentage of wins over losses.”

Mitchum has a humble view on day-trading. When asked about the secrets of trading success, he says “regular exercise, sleep and self-reflection”. Having traded markets professionally for more than a decade, Mitchum knows trading can be gruelling and unforgiving. 

ASX Investor Update asked Mitchum about life as a day-trader, how he choose trades and his general advice for aspiring traders. Here is an edited extract of his response:

ASX Investor Update: Austin, what does your typical work day look like?

Austin Mitchum: I wake about 5.30am each morning and try to get a one-hour gym session in before work. Sometimes, the exercise is cut short if my one-year-old decides to wake in the middle of my workout! It’s so important to get the body and mind working and active before you trade – and have a good sleep.

I get to the office about 8am and start preparing. One of the most important parts of my morning is to analyse fresh company news. I do this via ASX newsfeeds, Bloomberg, Spark Iguana (and other information sources). I am looking for earnings releases, trading updates, contract wins/losses etc. This information must be material (able to move the stock significantly) and a surprise to the market and consensus view. 

At 9.30, I attend the Propex morning meeting where traders from across the firm talk about market events and possible moves.  

Before the market opens at 10am, I spend time visualising my trading patterns. I’m “game-planning” in my head what my trades will look like on the day and how I will respond. It’s a bit a like a professional athlete visualising his or her performance and using that to develop intuition about how they react in real-time.  

Depending on market conditions, I’ll trade throughout the day and closely follow price action. After the market closes, I review my trades and I leave for home after 5pm on my bicycle. I spend a few hours with my family and am usually in bed by 9.30-10pm.

ASX Investor Update: What do you trade?

Austin Mitchum: I mostly focus on Australian equities in the S&P/ASX 300 index. Each day I try to identify future share-price movements that can be statistically significant. I’m not interested in 1% moves up or down; I look for stocks that can move 3-5% in a day on good volume. That’s why I focus on large-cap stocks, typically around news events, such as a profit report or overnight event.

I’m more of a “long” trader (profits from rising share prices). But I’ll also “short” stocks (profits from falling share prices) as market conditions dictate. 

ASX Investor Update: How often do you trade each day? 

Austin Mitchum: At best, I can meaningfully trade 4-5 ideas in a day. I might be in an out of those trades many times throughout the day. If I’m trading well, I’m focused on less than 4-5 ideas. I’m always conscious of over-trading. I normally close all my positions in a day and rarely have overnight exposure. 

ASX Investor Update: How do you identify trading ideas? 

Austin Mitchum: I have different strategies. Generally, I favour momentum-based strategies around price or time. That is, I’ll trade stocks that have a strong intraday trend, usually around a news catalyst. The simplest technique is trading a stock that has “broken out” of its intraday range (on a price chart). I’ll join the price move higher and sell the second I see the trend becomes exhausted.

Mean-reversion is another strategy. Essentially, I look for stocks that are very stretched from their equilibrium (normal) price over time.  My spreadsheets use some linear regression models to identify stocks that could fade back to their trend price.

I am always looking for catalysts. I look for correlations (relationships) between US and Australian stocks. A US buy-now-pay later (BNPL) stock might have a big fall in late trading in the US. I know that when this US BNPL stock falls, certain Australian BNPL stocks tend to fall with it. So, I short those stocks on the day in anticipation of local price falls following the US move.

I also look at moves in large US ETFs. Some key lithium ETFs there have a high weighting in Australian lithium stocks. If the US lithium ETF falls in US trade, that could have implications for selling in Australian lithium shares. Often, these correlations are well-known in the market, so you need to find areas where you have an edge.

ASX Investor Update: How do you allocate capital to trading ideas?

Austin Mitchum: To create meaningful profits, I usually have a position size of $250,000 to $500,000 in a single trade. The amount I allocate reflects my conviction in the strength of the trade. If the set-up for the trade looks strong, I’ll allocate exponentially more capital compared to a trade that is less attractive. Again, it’s the trader’s mentality of maximising your profits from a few high-conviction ideas. 

ASX Investor Update: How hard is to consistently make profits from trading?

Austin Mitchum: It’s very hard. I’ve never had a losing year from trading. But my best annual win rate is about 55%. Most professional traders would struggle to do that or more, year after year. Most of my annual profits come from one or two good ideas a month that deliver two-times returns.

ASX Investor Update: How do you minimise losses?

Austin Mitchum: I have predetermined stop-loss strategies (a point where you sell, to minimise losses). It could be a price-based stop where I sell if the stock falls by a certain percentage amount and my idea is clearly wrong. Or it could be a time-based stop. For example, I expect an oil or gold stock to move in a certain way on news of Russia’s invasion of Ukraine. If it doesn’t move after that news as expected, I exit the trade.

Often, the decision to exit a trade is based on intuition and experience. I watch the price action and on-screen order matching very closely. If I’m “long” a stock and it goes up and up, and a big seller comes in, I’ll exit. I’m anticipating that other traders will believe the price uptrend is faltering and will also look to sell. I try to get in first. 

ASX Investor Update: How do you deal with trading losses?

Austin Mitchum: Nobody likes losing money. As a professional equities trader, you know that losses are part of the cycle. But it can still hurt and be stressful. 

When I lose money, I put pen to paper and reflect on why my idea failed. Was the idea bad or did I execute it poorly? I discuss these reflections with my trading mentor in the US. You have to find ways to learn from failure and become a better trader.  

Taking time away from the market is hugely important if you have a run of losses. The last thing you should do is trade when you have an impaired mindset and are under pressure to recoup losses quickly. I take a short break from trading, double down on my exercise, and spend more time with my wife and two young children. 

Most of all, I return to my processes. I know that if I follow my trading routines and execute with discipline, I will win more than I lose over time. 

ASX Investor Update: How do you stop hubris setting in after a big win?

Austin Mitchum: That’s a good question. When you have a run of big wins, it’s easy to think your trading is invincible. Inevitably, you overtrade, bet too big and lose discipline. I suspect many new traders thought that trading was easy during the early part of the COVID-19 recovery when everything trended up. Markets this year have been much harder. 

I know that you have to average wins and losses over long periods. In my experience, the best traders are humble because they know the market can quickly take back wins. My family responsibilities also keep me grounded. There’s no time to party after a big day. I want to sleep well and get ready for the next trading day.

ASX Investor Update: What general advice would you give aspiring traders?

Austin Mitchum: First, be realistic. Understand that when you day-trade you are competing with many highly-skilled professional traders who have been doing it for years. I use the professional sporting analogy because trading is intensely competitive. Everybody is fighting to find and maintain a small trading edge.

Second, make sure you trade the right stocks. That is, stocks with good volume and a clear news catalyst, such as a profit report that day. Bad traders have more chance of living to fight another day if they at least trade stocks with volume and news catalysts. 

Third, develop skills in “tape reading”. The best traders I know spend most of their time watching a stock’s order book on screen. They focus on bids and offers and how that affects prices. They get good at seeing patterns in order books. They try to understand how the market will react in real-time to a news event. 

Finally, don’t overemphasise one trading tool. Charting, for example, can be a useful tool at times. But having a charting package won’t give you a sustainable edge over another trader. You need to develop a range of trading tools – and know when best to use them.

ASX Investor Update: What do you love most about trading? 

Austin Mitchum: For me, trading is an avenue to self-improvement. It forces you to test yourself every day in an intensely competitive arena. You have to constantly learn, adjust and deal with your emotions. You have to be physically and mentally fit, and resilient. You learn a lot about yourself and others trading each day. It’s a fascinating job.