Typically when you buy stock, you hold on to it for an extended period of time in hopes that it will increase in value over time. However, day trading consists of buying and selling stock within the same day. The goal of day traders is to make a profit by leveraging a large amount of capital in order to take advantage of a small price movement in high indexes or liquid stocks. Day trading can be extremely risky for beginning traders as well as traders who do not follow a well-developed method. Day trading is really not that complicated if you learn a few simple strategies for anticipating market moves. Here are some beginner tips that may help you become a successful day trader.
Educate Yourself
It is extremely important to understand that day trading is a business and just like any other business you have to learn everything you can about starting the business from the ground up. Educate yourself and learn everything you can about day trading before diving in. Online forums are great places to learn what others are saying about day trading as well as or learning tips from others who have learned what it takes to be successful. Spend time reading blogs and visiting websites that offer information about strategies that help minimize loss and maximize profits. If possible, find a mentor who can help you with trading. Someone who has been where you are, but has mastered the ins and outs of day trading. A good mentor can guide you through the details of what to look for and how to trade smart. Never stop learning. The strategies that are earning you profits one day, may not work the next day, so be ready for changes.
Methods and Strategies
One of the most important things you need in day trading is a method or a strategy. Learn everything you can about the different methods and strategies and practice them before putting them into use. Keep in mind that no strategy is a guaranteed assurance of profits, but it can help you minimize the risks and increase your confidence. The majority of day trading methods and strategies rely on the same tools used for standard trading, but the main difference is knowing when it is the best time to exit. Typically, you will want to exit when the interest in the stock decreases. Some of the most common strategies include:
- Scalping, which is the strategy most often used, involves selling the trade almost immediately after it becomes profitable. The price target when scalping is profitable, but fairly low.
- Fading is shorting stocks after there is a rapid, upward move. This method is based on an assumption that the stock is overbought, so the early, existing buyers are ready to back out and start taking their profits. The price target is usually achieved when the buyers who backed out begin buying again, which increases the value.
- Daily pivots is the process of earning a profit from the daily volatility of stocks. This means you attempt to buy trades at the lowest price of the day and sell at the highest price of the day. The price target is buy and sell at the next sign of a reversal.
- Momentum is a strategy that typically involves trading on a news release or finding a strong trending move that is supported by high volume. For example, buying a trade based on the information of a news release and staying with this trend until it begins to show signs of possible profit loss. When using this method, the price target is when the volume starts to decrease and bearish candles begin to appear (candlestick charts provide a raw analysis of the price action).
Practice, Practice & Practice Some More
Before you put any of your money at risk, it is essential that you have real trading experience, not just what you have learned from theories, books and blogs. There are demo accounts available online that allow you to learn the basics of trading, including the experience of losing and winning, without spending real money. Spend several days practicing on a demo account, familiarize yourself with the basics of moving averages, currency charts, candlesticks, trend lines and patterns. You will regularly use all of these tools, so it the more familiar you are with them, the better you will understand how to use them.
Trading is risky and it involves a lot of uncertainties, however, it is can be a profitable venture, if you know how to do it correctly. It is important that you not let your emotions overcome your rationality. For example, making a profit is great, but being greedy in trading easily turn the tables and instead of making a profit, you may end up buried in losses. Don’t let fear stop you from trading, just make smart trade decisions and know your limits. Discipline and control are key, so only trade what you can afford to let go. Each trading day there are certain hours where the trade volume reaches it peak, learn the high volume trading hours and take advantage of them.
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