Day trading refers to the strategy of buying and selling an asset within the same day or even multiple times over the course of a day. This can be a profitable technique as long as you follow the rules and principles. Here are some quick tips for beginner day traders.
Stack Up some Knowledge
Aside from the knowledge of the trading process, day traders need to keep abreast of the latest stock market news and events that impact stocks.
Among these market news items are the Federal Reserve’s interest rate plans, economic forecasts and outlook, and others.
In other words, do you homework. Make a list of the stocks you want to day trade and be constantly informed of the selected companies and general markets.
Allocate Some Funds
Always have some funds that you are willing to risk on trading. For most day traders, 1% to 2% of their account are enough to risk per trade.
In addition, you can set aside from surplus amount of capital that you can trade and are ready to lose.
Manage Your Time
Day trading demands that you give it time. In other words, you will have to give up many hours of your day to day trading.
That means it might not be a good idea to day trade if you have very limited time to spare. Day trading requires a trader to follow the markets and find some opportunities, which can appear any time during the trading hours.
Small Trades at First
If you’re a beginner, it’s better to focus on one to two stocks during the session. This way, it will be easier to spot and track opportunities with just few stocks.
Through the years, it has become easier to trade fractional shares. That means you can invest specific dollar amounts.
Do not Trade Penny Stocks
It’s not bad to search for good deals and low prices. However, do not be tempted by the appeal of penny stocks.
Penny stocks are often illiquid (meaning you can sell them and convert them into cash quickly). Thus, your chances of making it big through penny stocks are often slim.
Timing the Trades
Many order and trades from traders get executed as soon as the markets open in the morning. This contributes to volatility.
An experienced day trader may be able to spot patterns and pick aggressively to make profits. However, for beginners, it’s often wise to just read the markets without making any trades in the first 15 to 20 minutes.
The hours in the middle of the day are typically less volatile. Asset movements start to pick up again toward the closing hours.
Stick to the Plan
The most successful traders are those that move fast. However, it doesn’t necessarily follow that they need to think fast and make decisions off the fly.
That’s because these professional traders developed a trading strategy in advance, coming with the discipline to stick to the strategy.
It’s more important to stick with the plan than to chase profits.