The concept of trading has been around for decades, but when it first started, the only people that were practising it was those who would actively trade on the stock market, who worked either as brokers or in financial institutions or trading agencies. However, with the rise of technology and the internet, these authorities have made it easier for everyone to get on the band-wagon too.
This idea of day trading has made many people millions, not to mention making a very rewarding vocation out of it. However, if you’re just starting and have never seen or read about it before, it can, of course, be a little challenging if you do not have a well-thought-out strategy. Not just beginners but experienced day traders can also see losses. But we’re here to help you make sure that doesn’t happen too easily.
In a nutshell, day trading is the act of buying and selling security within a single trading day. Commonly done within the stock markets and foreign exchange (forex). The typical day trader is mostly well-funded and has a reserve of cash for this particular reason. The idea revolves around leveraging and short-term trading tactics to capitalize on the frequent price changes in liquid stocks or different currencies.
It is an important factor to note that the market is volatile because it reacts when expectations are not met or are exceeded, some movements can benefit the traders, while other ones are not. The best way to learn about this concept is to join an online trading education course or affiliate which teaches day traders how to trade the right way through online courses and live chat forums. A Trading Review would have some legitimate and informative literature for any beginner, on how to choose the best one, because it is very easy to get scammed into paying thousands for these type of online courses or get-rich-quick- schemes and never see your investment again.
Different Types of Day Trading Commonly Practised
There are a few strategies that have been used by educated traders which have proved to be beneficial. Some of these are:
- HFT or High-frequency trading: which uses complex algorithms to exploit small or short-term market inadequacies.
- Scalping: attempts to make frequent small profits on small prices changes throughout the day.
- News-based trading: normally follows the heightened volatility of news events.
- Range trading: this form of trading mainly uses resistance and support tactics to determine the buying and selling decisions. You can read more about these on this online source here.
Strategies for Beginners
You’ve made up your mind that you want another stream of income and would like to pursue this path and learn more about it – congratulations! Doing your homework about it first is fundamental to your successful execution. Below are a few things to keep in mind before jumping straight into the deep end of things.
First and foremost, Knowledge: not only is knowledge about the basics of trading important but also keeping tabs on the latest news in the stock markets and any events that will affect it, is important. You need to keep your eye on the ball at all times, in this case, the ball is the ‘economic outlook’. Business news and reputable financial websites are also a good source to add to your favourites tab and check every day.
Aspects such as keeping an eye on the Federal Reserve’s interest rate plans https://www.thebalance.com/current-federal-reserve-interest-rates-4770718 is important. Along with this it’s also advisable to make a list of all the potential stocks you would like to trade, in your wish list, and stay informed on how they are doing and what their companies are up to in general.
Secondly, assess your capital: have you put some funds aside for this practice? It would be a bad idea to invest more than 2% of your savings or funds that you have allocated to this ‘project’. This is to say, you should have a surplus amount of funds to trade with, and not dip into your savings meant for your retirement or pension. You will risk losing some money so make sure it doesn’t come from an emergency fund and rather from a place where you can afford to lose it. It’s not going to happen if you do it right, but there is a possibility it may.
Thirdly, you need time for this: it may sound obvious but before you step into this idea, you should realise that it will; take up most of your day. This is because you will need to be tracking the market constantly, looking for opportunities which arise at any time of the day (or night) and the trick here is to act swiftly!
The Fourth piece of advice is to start small: it has now become an option to buy fractional shares from a company, this is a part of the whole stock i.e. a fraction of it. However, it’s good to know that these won’t typically be available on the stock market and are slightly harder to sell. In any case, it’s worth a try. If a company such as Microsoft is trading at $350 and you only want $50 worth of stocks, you can do this.
Fifth, stay away from penny stocks: a lot of newbies aim to buy penny stocks and find that they are of no value to them in the long run. This is because these types of stocks either cannot be sold or if you do sell them it will be at a loss.
Sixth point is to use logic over emotion: another important thing to note is that with this hobby or career, comes its own ups and downs, and it is advisable to not let it get to you. For instance, if you lose, don’t get angry or sad, and if you win, don’t get greedy. It’s simple – use your logic instead of letting your emotions get the better of you.
This list above is just a few of the important point to keep in mind when deciding to go this route. Always remember to stick to the plan – “Plan your trade and trade your plan.”