Updated on August 8, 2019
Day trading is when you buy and sell a financial instrument on the same day. There are a lot of people who feel that being a day trader is the best step into the trading industry. If you are a new day trader, there are some tips that you need to know about. These tips can help you navigate the risky venture of day trading and hopefully come out with a profit.
Knowledge Is Power
Before you start trading, you need to understand that knowledge is power with day trading. There is a lot of information that you need to know before you start trading. You need to know the basics of the trading process and what affects the prices of the financial assets you want to trade.
You need to take the time to do some homework and research your market. It is recommended that you choose one market to trade in such as forex or stocks. Once you know which market to target, you should choose the stocks or forex pairs that you want to trade. You can then research their movements, what affects them and how the general market will react news related to them.
Set Aside Some Funds
A tip that you will hear a lot when day trading is that you should never trade with money that you cannot afford to lose. There are no guarantees with day trading and trade that seems profitable can easily turn. When it comes to your funds, you also need to consider how much you are willing to risk on each trade.
The most successful traders will generally risk less than 1% or 2% of their entire account on each trade. This means that if you have an account of $40,000 and want to risk 0.5% on a trade, your maximum loss for the trade will be $200. When you set these risk levels, you need to stick to them. Risking more on trade can easily lead to you losing your entire account.
Make The Time
Day trading is something that requires time and you need to set aside time dedicated to this. As you are only trading during the market hours, you will need to dedicate most of your day to this. If you have limited time to spare for trading, this will not be the best option.
Day trading requires time to track the markets and the news that affects the markets. You need to be able to quickly move on the news and trends of the market to make a profit. If you are doing this in your spare time, you will often miss the trends that you need to take advantage of.
It can be tempting to start big so that you can make a large profit on your trades. This is a mistake for any new trader because you need to become used to the market and trading. It is recommended that you start small with only one or two stocks or forex pairs being traded each day.
If you are going to trade with stocks, you can make use of fractional shares. This means that you only buy part of a share instead of buying the whole share which could be more than you are willing to risk. If a share is trading at $250, but you only want to buy $50 worth, fractional shares allow you to do this.
Make Use Of Stops
When trading, you need to make use of stops. This will ensure that your trades end when you want them to and will help you avoid the temptation of letting the trade run. Upper stops will close the trade at the best price. You can set the price to end at and this is often when you have made a certain percentage profit.
Stop losses are just as important because they reduce the losses that you make. When you open a trade, you need to set a stop loss to close the trade at a certain loss point.
Being a day trader is something that a lot of people dream about. However, there are serious risks involved in this. You must use some tips to help you start your day trading on the best footing.
Updated on August 8, 2019
If you’re one of those people just itching to become your boss, doing things your way and on your terms, you’ve very likely considered day trading as a possible career switch. While it may sound easy enough, day trading is challenging, especially in the beginning. Before quitting your day job, there’s a lot you need to learn, including, but not limited to, the following 10 rules to follow for making a successful go of it: Click here for more tips and tricks.
1. Start Saving Money Long Before You Begin Day Trading
While most people don’t have “extra” money lying around, day traders first starting to need some. Before you delve into trading, put enough money aside so that you have working capital (cash to operate your home/business daily), and make sure you can afford to lose it (even though, optimistically, you won’t).
2. Keep Your Hopes On A Practical Level
Wouldn’t it be nice to score big on your first few trades? Well, even if you did, profits in day trading are usually accumulative, meaning you need to keep “scoring”, to keep your business going. Be practical about what you expect to make and don’t get too far ahead of yourself, especially in spending money you haven’t yet earned.
3. Study The Field Before You Invest
There are many books and websites where you can learn a treasure trove of knowledge, and it behooves you to do so. Without signing up with every “guru” on the Internet, investigate all the great sources of information and take notes, so you’re familiar with terms of the trade.
4. Set Your Working Area Up For Success
Even though you’ll most likely be working out of the comfort of your own home, you need to do so in a professional manner. Change out of your pajamas and arrange your immediate work area neatly, much the same way you would if you were working in an office for a company.
5. Have Patience (A Lot Of It)
It takes time to learn to trade and it may take time to start reaping the rewards. Be patient and abide by the realistic goals you set, not by your lofty dreams or the success stories you may read about.
6. Don’t Dabble In The Small Stuff (Penny Stocks)
Penny stocks can be okay as a learning tool, but for the most part, most day traders don’t dabble in them. Stick to regular trading, getting better at it after each transaction.
7. Trade During Middle Hours, Until You’re More Adept
Mornings are usually far more volatile for traders than say, mid-day. Avoid trading as soon as the markets open, at least until you know what you’re doing. Most people in this business have a favorite time of day to work, and while that could be first thing in the morning, it probably shouldn’t be for beginners.
8. Keep A Second Income Going (For The Time Being)
Even if it’s only a part-time gig, definitely keep the second form of income active in your life. You want to be able to keep trading, even if you don’t exceed your expectations, initially, and, of course, you want to be able to eat and pay your bills.
9. Have A Long-Term Investment Strategy
Day trading, eventually, should provide you with a steady, somewhat predictable income and it’s important to make that part of your long-term strategy. Don’t plan on major windfalls, even if you find yourself “on a roll”. Plan on getting better at what you do, steadily increasing your income over a substantial period.
10. Don’t Get Discouraged – You Will Get The Hang Of This
If all the information you take in seems overwhelming, or if you have a run of bad trades, don’t give up. There will come a point when everything “clicks” and you’ll feel much more confident in what you’re doing. By that time, you should be earning more, and, from there, things should only improve, provided you remain grounded and follow your original plan.
Day trading is simple in theory; however, it’s not so simple in practice, nor does it offer any guarantees of overnight success. Learn, save, practice and be practical and under no circumstances should you quit your day job before you become a master at day trading. Once you’re more of an expert and are sure you can handle the risk, you should (finally) be able to realize your dream of becoming your boss and living life on your terms.