Day trading is the process of selling and buying financial assets within the same day or even multiple times in one day. If played correctly, the small price moves can be very lucrative. But it can be hazardous for those new to this game; hence, it is essential to adhere to a well-thought-out strategy.
However, not every broker is suited for the high amount of trades made by day traders. At the same time, some brokers are designed as per trading days in mind. This article focuses on some of the primary day trading rules and when to sell and buy, basic charts and patterns, standard day trading strategies, and how to reduce losses.
1. Knowledge is power
The knowledge of basic trading procedures is needed. The traders should keep themselves updated about the latest stock market news and the events affecting stocks, like the Fed’s interest rate plans, the economic outlook, et cetera. So homework needs to be done. Then make a list of all the stocks you may choose to trade and keep yourself updated about the selected companies and general markets. Read the business news and visit trustable financial websites.
2. Set aside funds
Assessing how much capital you wish to risk on each trade is a must. Most successful day traders bet only 1% to 2% of their accounts per trade. For instance, if you have a €40,000 trading account and take the risk of up to 0.5% of your capital on every trade, the maximum loss for trade will be €200.
3. Set aside time, too
Day trading demands your time and efforts during the day. Hence the name day trading. Day trading will consume most of your day, and you should not consider it if you have limited time to invest. All your time is consumed in tracking the markets, spotting opportunities that can arise at any time during the day. Moving quickly is the key to success here.
4. Start small
If you are a beginner, you should focus on a maximum of one or two stocks during a day. When you have a few stocks to look after, trading and finding opportunities becomes easier. It has become growingly common to trade fractional shares so that you can specify particular, more petite euro amounts you need to invest. This suggests that if Apple shares are trading at €250 and you only wish to buy €50 worth, most brokers will not let you purchase 1/5 of a share.
5. Avoid penny stocks
When you are looking for deals and low prices, you should stay away from penny stocks. These stocks are primarily illiquid, and chances of cracking a jackpot are often bleak. Most stocks trading under 5 euros a share Get delisted from major stock exchanges and can only be traded over the counter( OTC ). Unless you spot a real opportunity and have done your homework, stay away from these.
6. Time those trades
The moment markets open in the morning, the execution of the orders placed by investors and traders begins. An experienced player shall be able to recognize patterns and choose appropriately to earn profits. But for newbies, it might be better to understand the market without making any moves for the initial 15 to 20 minutes. The middle hours are mostly less volatile, and then movement begins to increase again toward the closing. Even though rush hours offer ample opportunity, it is safer for beginners to avoid them initially.
7. Cut losses with limit orders
You must decide what types of orders you may use to enter and exit trades. It would help if you decided whether you would choose market orders or limit orders. The drawback of placing a market order is that it is executed at the best available price at particular time management and hence has no price guarantee.
8. Be realistic regarding profits
A plan doesn’t need to win all the time to be profitable. Most of the traders only win 50% to 60% of all trades. This is done by making more on the wins than losing on their losses. You must make sure that the risk on each trade is limited to a particular percentage of the account and that the exit and entry methods are written down and clearly defined.
9. Stay cool
At times the stock market might test your nerves. Being a Day trader, you should learn to keep greed and fear at bay. It would be best if you used Logic while making decisions, and emotions must be kept aside.
10. Stick to the plan
Becoming a successful trader needs you to move fast, but it is not essential to think fast. What is the reason behind this? This is because successful traders develop trading strategies in advance and rules to stick to that strategy. You must follow your plans accurately instead of chasing profits. Be careful because, at times, emotions get into the Way of strategy and destroy them.
What makes day trading Tough?
It takes a lot of practice and mastering various challenging sectors to be a successful Day trader. The first thing that needs to be kept in mind is that you are going up against professionals who have trading as their career. These professionals have access to the best technology and links in the industry, so even if they end up as a failure, they have backup plans to succeed in the end. Being an individual investor, you are prone to psychological and emotional biases. The professional traders cut out these factors of their binary trading strategies and have the edge over those influenced by emotional and psychological factors.
Day trading is profitable only in the long run where traders take it seriously and do all the research related to the field and markets. Forex Affiliate Programs are the best way to make money online. Day trading is not a hobby but a typical job, and it must be treated very diligently; a person should stay focused and keep emotions aside.