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If you are someone who wants to invest in stocks but can’t seem to make up their mind due to the fact that it is a long-term commitment, then you may want to consider exploring the world of day trading. Let’s face it, as investors, we have all been tempted by it at some point and it’s only natural because it doesn’t require you to analyze different graphs and decode information they embed.
Day trading is a short-term investment that doesn’t last more than a day. You invest into the financial markets that are on a growth trajectory in a bid to make profits in a short time. You don’t have to rely on one particular trade and put all your eggs in the same basket. You may make multiple trades and cash them out the same day to maximize your profits. A lot of people do day trading as a hobby and some have even made it their profession.
We are going to guide you on how an average Joel who has limited or no experience in day trading can get started in a time when America is going through its worst economic and political turmoil in decades. Now, without any further ado, here is a comprehensive guide to day trading.
1. How much time does it require?
If you plan on getting rich overnight through day trading, then you may want to rethink because this is not something that you can master in a short time. It requires time and patience to learn about its ins and outs before you can actually start investing your capital and hope to make profits off of it. Just like with any other skill, the best way to master this one is practice, this may seem obvious, but a lot of people ignore this important step and jump right in without practice.
Get a demo account and implement different strategies to see which one works best for you. Bear in mind that day trading is different than your average trading portfolio and it requires you to be highly focused and patient.
2. Trading Styles
There are different styles of day trading and just because a certain style works well for someone doesn’t necessarily mean it would be the same for you too. While some day traders rely on price charts to decide when to execute a trade, others keep an eye on specific news events or statistical probabilities to buy or sell.
Another style that’s fairly common among day traders is scalping. Scalpers are among some of the most active traders who make dozens of trades each day and catch small price movements with large position sizes.
Similarly, some traders are more into bigger price movements. They set an estimated exit price before which they patiently watch their gains soar.
3. How much capital do you need to start?
At this point, you must be wondering how much capital you need to get started. Well, that depends on the market you are trading in. Though stocks are popular among day traders, one needs at least $25000 to $30000 to be able to trade stocks in the US. Whereas, for forex trading you can get started with as little as $500.
It’s better to start small and test the waters first by focusing on one to two stocks in each session as they are easier to keep track of.
4. Avoid investing in penny stocks
You might come across traders who would try to convince you to invest in penny stocks as a day trader, but you may want to stay clear of them. They are highly unstable, illiquid and the chances of you winning big with them are quite slim. The last thing you want is to invest in a stock that’s trading under $5 a share only to find out that it has been delisted from all the major stock markets and can now only be traded over the counter.
Unless you are an expert in penny stocks and have done your research on these, run as far away from them as possible.
5. Don’t Rush
While the trading starts as soon as the markets open but the prices in the rush hours are volatile. This does not pose a challenge to the seasoned players who have spent a good part of their lives in stock markets but for beginners this could be a problem. The market activity is at its peak during the early and the closing hours. Be sure to read the markets, wait for 15 to 20 minutes after it opens without making a move.
There is a lot more to day trading than meets the eye and if you are courageous enough to give it a shot then it just might help you hit the jackpot. If you are interested in finding out more about day trading then here is a guide on how to choose stocks for day trading.
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