Things To Understand Before Entering Day Trading

Day trading is the kind of trading when you purchase and sell a financial instrument in a single trading day, one or more times. If you do it right, making the most out of small price moves could yield good results. Having said that, one even needs to bear in mind that day trading can turn out to be dangerous for new players and also the trader forex who do not stick to a strategy.  

Every broker may not be equipped for high-volume trades which take place during day trading. However, you might even find some traders who are a good fit for trading. Read on to find out how you can day trade in the stock market.  

1. Keep up to date with the market

Along with being aware of the various processes of day trading procedures, day traders should stay on top of the latest stock market news and events that could have an impact on stocks. This would be inclusive of the Federal Reserve System's interest rate plans, and leading indicator announcements, along with various other economic, business, and financial news–the point is, you need to make sure you’re prepared. Prepare a list of stocks that you want to trade and gain all necessary knowledge about the companies you choose, their stocks, and markets in general. 

2. Keep aside funds

Analyze and set aside the funds you would want to put on a single trade because that’s also the amount you risk per trade. A lot of leading traders would risk less than 1% to 2% of their accounts in each trade. In case there is $40,000 in your trading account and you are comfortable risking 0.5% of your capital on a single trade, you would incur a loss worth $200 (0.5% x $40,000) at the most in each trade. Earmark refers to the additional amount of money or a surplus for trading which can be exposed to risk.  

3. Keep aside time

Day trading needs you to give it adequate time as well as attention. Truth be said, you need to spend a major part of your day trading, so it’s best to avoid it if you have limited time to trade.

Day traders need to keep tracking the markets and look for opportunities that may surface suddenly during trading hours. You need to stay alert and act quickly.  

4. Start small

If you’re just getting started, best to pay attention to stock or two in a session. It is much easier to track and look for the right opportunities when you only have a few stocks to deal with. In recent times, trading fractional shares have become popular. 

5. Avoid penny stocks

You could be searching for deals and relatively lower rates but keep away from penny stocks. Typically, they are illiquid stocks and you’re not likely to be a millionaire with them. Several stocks which trade below $5 a share are delisted from key stock exchanges and can be traded over-the-counter (OTC). 

6. Time your trades

A number of orders that investors put in place would get executed the moment the market opens, leading to price volatility. A veteran trader would be able to identify patterns that exist at the open and time orders to be able to earn profits. If you’re an amateur trader, it is best to assess the market and avoid any moves in the initial 30 minutes.  

Generally, middle hours tend to be far less volatile. The market shows a lot of movement when around the closing bell. Of course, there are many opportunities during rush hour, so beginners should try to avoid them at first. 

7. Limit your orders

Determine the market orders that would help you enter and exit trades. What would you use–market orders or limit orders? A market order is carried out at the best possible rate at the given time without any guarantee on the price. It is great when you simply want to enter or exit the market and are not worried about the order being filled at a certain price. 

A limit order on the other hand may assure you of the price but not order execution. They can allow you to trade accurately with more confidence as your order needs to be met at the price you had set in the first place. Loss on reversal could be reduced significantly with a limit order. But in case your price isn’t met, your order would not be filled and you’d keep your position. 

8. Have realistic profit expectations

A strategy need not always be successful to yield results. There are several successful traders who win only 50% to 60% of their trades. But they earn more in the winning trades than what they lose in their losing trades. Ensure that the financial risk on every trade is confined to a certain percentage of your account with clearly defined entry and exit methods. 

9. Stay calm

The stock market could test your patience many times. A day trader should be able to keep greed, hope, and fear in check while taking their decisions rationally not emotionally.  

10. Stick to the plan

Successful traders need to have quick moves but that doesn’t mean they should make hasty decisions. This is because they have created a trading strategy in advance and are disciplined enough to adhere to it instead of looking for profits.  

Is Day Trading Good for Beginners?

If you go by the numbers, day traders are likely to lose money but you can be successful as you practice and enrich your experience. New traders must trade accounts with "paper money," and test their strategies before putting their own money at stake.  

The Bottom Line

Day trading is hard to gain expertise in and demands time, skill, as well as discipline. A majority of people who get into day trading incur losses that can be managed with the right strategies and moves we spoke about. Visit https://multibankfx.com/products/shares

Institutional as well as individual day traders play a central role in the market, keeping them effective as well as liquid.