Once, only people who have large financial institutions, trading houses, or brokerage were able to trade actively in the stock mark9. But, this situation is now changed. With the rise of the internet and the online trading house industry, any average individual investor can get in on the game. It is a lot easier and more profitable for everyone, and all the credit goes to the internet. Day trading can turn out to be a very high-paying career only if you know how to do it properly. But, day trading can be challenging for beginners, especially for those who are not ready yet or have not thought of any proper strategy. Sometimes, even the professional or most seasoned day traders can have losses or hit rough patches. To be fully prepared and expert, you need to know everything about day trading.
WHAT IS DAY TRADING?
Day trading generally is a concept of buying and selling a security within a single trading day. Day trading can occur in any marketplace. But it mostly occurs in the foreign exchange, which we know as forex and in stock markets. Day trades are mostly well funded and well-educated. They use a very high amount of leverage and short-time trading strategies to capitalize on small price movements. These small price movements occur in highly liquid stocks or currencies. Day trends are some events that cause some short-term market moves. Trading is based on the news, and it is a popular technique. Scheduled announcements such as corporate earnings, economic status, or interest rates are subject to market explanation and market psychology. The day trading market reacts when those expectations are not met or exceeded, usually with sudden important moves, which can greatly benefit the day traders. So, day traders must know numerous strategies. Such as:
- Scalping: This strategy attempts to make small different small profits on different small price changes throughout the day.
- News-based trading: This strategy typically seizes trading opportunities from the heightened volatility around every news event.
- High-frequency trading(HFT): These strategies generally use sophisticated algorithms to exploit small or even short-term market inefficiencies.
Range trading: This strategy primarily uses the support and resistance levels to determine the buy and sell decisions.
6 STRATEGIES IF YOU ARE A NOVICE
GET THE BASIC KNOWLEDGE
Day traders need to keep their eyes open and keep up on the latest stock market news and events that affect the stocks. They need to know this in addition to knowledge of the basic trading system. They need to look upon the Fed’s interest rate plans, the economic outlook, etc. So, if you are a newbie in the day trader world, make a wish list of stocks you would like to trade and keep yourself always informed about the selected companies and general markets. Scan all the business news, and you can also visit reliable financial websites too.
ALWAYS START SMALL
As a novice, you should focus on a maximum of one to two stocks during a session. Tracking and finding opportunities is a lot easier when you have just a few stocks. It has become increasingly common to be able to trade fractional shares these days. So, you can specify the specific small dollar amounts that you want to invest. It means, if Apple shares are now trading at $250 and you only want to buy $50 worth, then many brokers will let you buy one-fifth of a share.
ALWAYS SET ASIDE FUNDS
Just assess the amount of money you want to risk on trades. It is seen that many successful day traders risk less than 1% or 2% of their accounts per trade. Set aside a specific amount of funds to trade with, and you are ready to lose that. Don’t worry much. Just remember, it may or may not happen either.
SET ASIDE YOUR TIME
It needs time, and that is why it is called day trading. You need to give up most of your day. Never consider doing day trading if you have limited time to do it. This process requires a trader to track the markets and track the spot opportunities, which can be very time-consuming. Moving quickly is the key to this industry.
BE REALISTIC ABOUT PROFITS
A strategy does not need to win to be profitable all the time. Many traders only win 50% to 60% of their total trades. However, they make more on their winners anyway. So, make sure the risk on each trade is limited to a specific percentage of the account. Also, it would be best if you were careful that entry and exit methods are defined and written down. So you can read those out. So you have to think rationally and be realistic about making profits from day trading.
ALWAYS STAY CALM
There comes a time when the stock market tests your nerves. As a daytrader, you need to learn to keep your greed, dear, and hope bay. Take your decisions governed by logic, not by emotions. Never take any decision when you are at a great loss or anxious. Because those decisions may make you lose more, so take time before you decide anything and think carefully.
Keep in mind that if you are trading on margin, it means you are borrowing your investment funds from a brokerage firm. This means you are a lot more vulnerable to sharp price movements. Margin helps to amplify the trading results. Not just of profits, but of losses as well if by any chance a trade goes against you. So, using stop losses is crucial when day trading on margin. Though day trading has become somewhat controversial, it can be a viable way to earn a profit. While trading remains popular among inexperienced traders, it should leave it initially to those with the skills and resources to succeed.