Day trading is, as the name suggests, the act of acquiring financial instruments and selling them within the same trade day.
A day trader should have no open positions remaining on the market when trades come to a close. Stocks and forex are generally the most common targets for day traders, and taking advantage of small price movements throughout the day can be highly profitable for an experienced trader.
As you probably imagine, you’ll have to dedicate a great deal of time to day trading in order to monitor market movements and improve your skills. You can basically think of it as your new job. If you’re still interested in becoming a day trader, then you’ll need to follow some essential day trading tips.
Day trading is controversial with some traders who argue that it shares more in common with gambling than investing, and it can be particularly difficult for newcomers. Successful day traders are generally professionals who have built their careers around the practice, and they’re your primary competition.
Preparation is key for any new endeavor, and you’ll want to go the extra mile when it comes to day trading. Firstly, you’ll need to set a strict budget that you’re willing to risk on the market. Luckily, you don’t need as much capital to begin day trading as you would for many other kinds of trades.
You’ll need a minimum of $25,000 in your account to begin day trading. It’s generally recommended to never risk more than one or two percent of your account on any single trade. It’s also important to focus on just one or two prospects in the beginning until you have a better understanding of market shifts and how they’ll affect your profits.
Lastly, you need to understand that your gains will generally be smaller than with other forms of trading, and they’ll still be taxed. Like any trader, you’ll also take losses on trades, perhaps even frequently. This is especially true if you’re making moves during the more volatile trade hours, but it’s important to stick to your strategy once you start trading for the day. No trading plan is successful all the time. You’re looking for one that can consistently net you more gains than losses.
Learn when to sell
It’s always good to hold a winning position, and there are several different ways to exit one. Being able to decide the most advantageous one is important to maximize profits. Scalping is one of the most popular day trading strategies, and it’s essentially selling the moment you’ve made a profit on a position. This is probably the safest option, but it also has a low profit ceiling.
Daily pivots are a potentially more profitable, but they’ll involve studying an option for some time. The idea is to learn when the price will drop to its lowest during its volatile period of the day, and then sell it when the price rises to its highest.
Momentum trading is less common with day traders. But it is possible to buy stocks based on news releases of the day and then sell them for a profit before the trading day is done.
You’ll also need a way to prevent great losses from the inevitable bad trades. A stop-loss order is your best option for this. This is an order you can set to automatically close out your positions if prices drop too low.
For example, if you bought stocks for $12 per share, you could set a stop-loss order to close out your position if the price drops below $11 to ensure your losses stay within comfortable risk. You can also set orders to automatically sell positions when their value is high enough, which can be useful for times when you aren’t able to monitor prices yourself.
To read more on topics like this, check out the business category.