Day trading strategies are essential for traders who want to capitalize on regular small price movements. Short-term trading (day trading) is one trading technique that most people misunderstand. The fast speed of moving investment positions in one trading day results in the assumption that day trading is more risky and volatile than other kinds of trading. Steady and effective strategies depend on in-depth technical analysis. Making use of patterns, charts, and indicators to predict future price movements. This article will focus on a summary of what day trading is and review some useful short-term strategies for beginners.
What is day trading?
Day trading is known as the purchasing and selling of security within one day of trading. This takes place with any marketplace but occurs mostly in the stock market and the foreign exchange market. Naturally, day traders are very well funded and extremely educated. They make use of high amounts of leverage as well as short-term trading strategies to profit from small price movements stock or currencies that are highly liquid.
Day traders have two major roles to play in the marketplace; they keep markets running proficiently through arbitrage. They also offer most of the markets’ liquidity (mostly in the stock market).
Here are ten fundamental day trading tips for beginners.
The power of knowledge
Apart from knowing very well the necessary trading procedures, day traders must be up to date with the latest news concerning the stock market as well as events that affect stocks. It is best to make a list of the stocks that you are interested in trading and keep yourself informed about the general markets and selected companies. Take a look at some reliable financial websites for consistent information.
Put aside an amount
It is imperative to evaluate how much capital you are willing and ready to risk on every trade. A lot of successful day traders usually risk not more than 1%-2% of their account balance on each trade. For example, if you have a trading account with a balance of $40,000 and you are prepared to risk 0.5% of that amount on each trade. The maximum loss per trade you will get is $200 ($40,000 multiplied by 0.005). You may or may not lose so put aside an amount to trade that you are ready to lose.
Also, make time
As day trading is somewhat short-term, it will require a lot of time, most likely the whole day. If you don’t have adequate time to spare, then you should not be considering day trading. Reason being that this day trading procedure requires you to be tracking the markets and identifying opportunities that come up at any given time within the trading hours. Therefore moving fast is critical.
As a rookie, it is wise to concentrate on one or two stocks in the one-day trading session. It is easier to track and find opportunities with only a few stocks. It has only just become increasingly popular to trade fractional shares to specify precise, lesser dollar amounts that you want to invest.
Stay away from penny stocks
Of course, as a beginner, you are going to be on the lookout for low prices and good deals, but steer clear of penny stocks
. These are usually illiquid stocks, and the probability of hitting the jackpot is often very low. A lot of the stocks that trade below $5 per share are often delisted from main stock exchanges and can only then be traded over-the-counter (OTC). Only if you have seen a legitimate opportunity or you have done enough research can you consider penny stocks, otherwise stay away from them.
Time your trades
A lot of orders that are placed by traders and investors start to perform in the morning as soon as the markets open. Which contributes to the price is volatile. An experienced participant would be able to distinguish patterns and select the fittingly to make a profit. However, for beginners, it may be a good idea just to read the market and not do anything for 20 minutes at least. The middle section of the trading hours is when there is the least volatility. As the closing bell draws nearer the movement starts to pick up yet again. The rush hours do have a lot of opportunities but as a beginner do yourself a favour and avoid them. For now!
Use limit orders to cut your losses when day trading
You have to decide what kind of orders you want to utilize to go into and exit a trade. You can choose limit orders
or market orders. If you select market order, it is at the finest price available at that moment. Therefore price “price guarantee” is non-existent. However, while a limit order guarantees the price, it does not guarantee the execution. A limit order assists you in making precise trades. Wherein you set a price for both selling and buying. Knowledgeable and skilled traders can use options strategies to boost their positions as well.
Be as realistic as possible concerning day trading profits
You don’t always need to have a win with a strategy to know that it is profitable. A lot of traders win only 50%-60% of their trades. The fact is that they profit more on their winners than lose on their losers. It is essential that you ensure the risk on every trade is limited to a particular fraction of the account. Also, make sure that the entry and exit strategies are visibly defined and jotted down.
Sometimes the stock markets may test your nerves. To be a successful trader, you need to learn how to keep hope, greed, and fear at reasonable controllable levels. With day trading decisions must not be directed by your emotions but by logic.
Always stick to the original plan
Successful day trading requires fast movement, but not necessarily fast thinking. This is mainly because they have their trading strategy developed in advance. This along with the self-control that helps them stick to that strategy. Rather than blindly chasing profits it is wiser and more critical to follow your plan thoroughly. To not allow your emotions to mess up your strategy.
Day trading is a very challenging thing to master and requires skills discipline and time. A lot of people who just take a chance without doing their research, fail. However, the guidelines and tips mentioned above will help you get started. If you consider these tips you may be able to develop a profitable strategy. With lots of fair practice and constant evaluation of your performance, you can increase your probability of beating the odds.