Day trading is the act of purchasing stock or another financial instrument and selling it in the same day, sometimes multiple times a day. Day traders often make a career out of trading and spend their days studying the stock market and making strategic trades that take advantage of minute price changes. The primary benefit of day trading is that it can provide enormous profits when done strategically. However, day traders are subjected to short-term fluctuations and constantly changing stock prices. Here we discuss 10 tips to increase earning potential through day trading while keeping your cool.
10 Tips for Successful Day Trading
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The following are day trading strategies and tips to keep in mind to get the most from your investments:
- Focus on one market. There are several markets that you can trade in, but trying to trade in every market will result in divided attention and a longer time before you make real money. A good strategy when starting out is to pick one market and put all of your efforts into understanding and trading in that market. Good markets to consider when first starting out are the foreign exchange market and futures markets.
- Set a trade risk budget. Successful day traders typically limit their trade risk to less than 1% or 2% of their overall capital. So, if you have $40,000 in assets you’re willing to trade, you’d risk between $400 and $800 on a trade.
- Choose one strategy to focus on when first starting out and hone that method by working on a demo account, or a day trading simulator.
- Keep up with the events and news related to your market and maintain a list of stocks you want to trade based on what you learn.
- Open a broker account with a reputable broker. You must have a broker account to trade, and choosing the right firm is imperative to your success as a day trader.
- Start by trading only one or two stocks at a time, and put all of your efforts into tracking these stocks and making strategic trades.
- Seek out a day trading mentor who can show you the ropes and help you make well-informed decisions when you first start out.
- Know what qualities to look for in stocks and other assets you choose to buy. Qualities to consider when choosing a stock or asset to trade or buy include its trading volume, volatility, and liquidity.
- Watch for any patterns in the stocks you’re trading and keep a note of this. Many stocks see intense trading in the first hour after the stock market opens and right before it closes. Because of this, it’s usually best to make trades in the middle of the day to avoid volatility.
- Get familiar with the day trading terminology. There are several phrases you need to know to stay in the loop when day trading. These phrases include candlestick, reversal, impulse wave, false breakout, price action, breakout, support areas, trend line, short trade, long trade, triangle, and tick chart.
The more you do your research and spend time studying your market as well as how seasoned day traders behave within that market, the more success you’ll have in making the most from your investments.