How to Day Trade

The idea of quick profits is an attractive one, especially in the stock market. However, no one gets rich by day trading, virtually. According to research, 99% of traders lose their money and others fail to make money consistently. If this does not scare you and you want to try day trading, there are rules you need to follow carefully to avoid stumbling. So, how do you safely approach day trading?

There are numerous tricks and tips that you can use to maximize day trading profits. While they are all useful, none of them is better than the tactics below when it comes to managing day trading risks. Only use an amount of money that you are okay with losing. Set aside a specific amount purposely for day trading. Do not use money for something else (such as rent). Start small.

As a beginner, making mistakes is inevitable; and so is losing money. Keep your day job. If you get in during a good time, you may be lucky. However, you should wait to see how your strategy works during tough market times. Wait and see if you are getting profits consistently then decide whether to focus more on day trading. What securities do you intend to purchase and sell?

The following are the ideal characteristics of a good day trading security. Good volume or liquidity: stocks are liquid, that is, they trade in high volume and often. That is why day traders love them. A little volatility: volatility means that the price of the security is changing frequently. The movement helps a trader make profits. 

Familiarity: it is important to understand what triggers security moves and how it trades. The more you know about a stock, the better you will be at trading it.

Newsworthiness: when the media vastly covers security, more people get interested. This facilitates liquidity and volatility. Day traders usually follow the news for ideas. Popular strategies for day trading will help you maximize profits. You can choose one or mix and match. Here are a few typical strategies. Range or swing trade: traders look for a “range bound” stock—one that bounces between a high and low price.

They purchase when it is low and sell when it is high. Spread trading: this is a high-speed technique that profits on temporary sentiment changes. Fading: a trader short sells a security that has risen too quickly with a wane in buying interests.

Trend following or momentum: this is riding the wave of a moving stock. The best times are when the stock market opens (from 9.30 am to noon) and the last hour before it closes. Risk management involves limiting a potential downside.

Consider the following:

  • Position sizing
  • Portfolio percentage
  • Losses (what is your loss endurance?)
  • Selling (when will you sell?)

Day Trading Tips

  • Create a strategy before starting.
  • Be patient.
  • Read a lot. Watch the market like a hawk. 

Day trading is quite alluring. Making money by trading from your couch is way more exciting than a 9-to-5 gig. The problem is that if you are an inexperienced or careless day trader, your portfolio can be wrecked in a matter of seconds. You need to understand the ins and outs of day trading and how you can minimize the risks. What Exactly Is Day Trading?

Day trading involves purchasing and selling securities in a short frame of time, usually a day. The aim is to gain a small profit with each trade and compound the profits over time. Cheap trades and online brokers facilitated the viability (and level of risk) of day trading. It enables investors to turn quick wins into a huge bankroll. Practically, however, it is much harder to make profits through day trading. A study conducted in 2010 showed that it is only 1% of day traders that make profits consistently.

The research was carried out over a period of 14 years. The small number of day traders who consistently make money devote a lot of their time to the practice. Eventually, they make it their full time job—they do not just trade quickly at lunch or between business meetings. If you really want to try day trading, borrow a leaf from the experienced full time traders.

How Does Day Trading Work? Day trading is highly volatile. Day traders heavily depend on the fluctuations of the market and the stock to make profits. Securities that bounce around throughout the day are highly liked. It does not matter what causes the fluctuations; be it general market sentiment, negative/positive news, or bad/good earnings reports. Day traders also love highly liquid stocks—these ones let them move in and out without significantly affecting the price of the stock.

A trader may purchase a high moving stock or short-sell one that is moving lower in order to profit on its fall. Sometimes, they trade the same stock several times a day to benefit from the changing sentiment. Regardless of the strategy they apply, their aim is to find a stock to move. What Makes Day Trading Hard? There are two reasons for this: Retail day traders compete with professionals.

These professionals know all the traps and tricks. They have access to personal connections, data subscriptions, and costly trading technology. They are set for success, but they still fail. The field is crowded. Retail investors are subject to psychological biases. They hold losers for way too long and sell winners too early. They are scared to buy declining stocks.

First, you need to ask yourself if you have what it takes to get into day trading. You cannot be faint hearted, and you should have intense focus. Before you commit real money, consider getting a practice account. Brokerage accounts typically offer practice modes. You trade hypothetically and see if your strategy works. 

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