Day trading involves buying and selling stocks within a day or, sometimes, within minutes. It can be lucrative, but novices often find it challenging. I’ve been a successful day trader for many years. Here are a few of my tips for beginners.
Bone Up
Successful day traders need to know trading strategies and stay current on the stock market and its trends. Common day-trading strategies are:
- Range trading, which uses a predetermined range for buy and sell decisions.
- Scalping, which profits from small price changes throughout the day.
- News-based trading, which takes advantage of news events that make stocks volatile.
- High-frequency trading, which uses an algorithm.
In addition to having several strategies in an arsenal, successful day traders also read the news daily, looking for Fed Reserve actions, information from companies they’d like to trade in, and economic indicators.
Set Aside Funds
Although day trading is profitable, it is also risky. I recommend setting aside only about 1 percent to 2 percent of the value of your accounts for day trading. These funds also should be surplus that you can afford to lose. Many brokers let you trade in fractional shares so that you can trade almost any stock. Avoid penny stocks because they hold more risk.
Start Small
Decide to trade in only one or two stocks each day. Monitoring and tracking developments will be more straightforward. Choose liquid stocks so that you can quickly sell them. Also, consider the amount of interest in a stock. If a stock’s average daily trade volume is high, the stock may be subject to price changes, either high or low.
Timing is critical for success. Many investors and traders act as soon as the market opens or right at the close of the day. However, a beginner may lack the experience to judge the market first thing in the morning. They may want to avoid trading within a half hour of the market opening and closing to avoid times of the highest volatility.Â
Consider Using Limit Orders
Brokers allow you to execute trades through two types of orders. Market orders occur immediately and give you the best price available then. Limit orders will execute only when the stock reaches a price you set. Using limit orders can reduce the risk of losses from price reversals.Â
Stick to Your Plan
Develop a strategy that includes the criteria for buying and selling. Then stick to the plan. Avoid panicking, greed, and other emotions. Make decisions based on logic and your formula.Â
Have Realistic Expectations
The media quickly reports stories of people who’ve made a lot of money in day trading. Beginners may think that most trades they make will result in a hefty profit. However, most experienced day traders only profit from 50 percent to 60 percent of their trades. The key is to ensure you make more on the “winners” than you lose on the “losers.”
Devote Enough Time
Being a successful day trader is a full-time job. You’ll spend time studying the market on multiple media. You’ll also have to be available throughout the day to buy and sell at the optimal times. If your time is limited, invest in stocks as a longer-term strategy rather than day trading.
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