Basics of Day Trading
Day trading can be a lucrative business when done with the right mindset. The best part about it is that both newbies and professionals get an equal chance at winning big. In this article, we will examine some of the basic things you need to know as a day trader. We will also share a few tips on how to maintain profitability in the markets.
What Do You Need to Start?
You can start off as a day trader with only a handful of tools. You might already have most of them sitting in your house. Since most of the transactions happen electronically, you will need a computer and a stable internet connection. A telephone will always come in handy for when you need to make a quick call to your broker.
Once you have the hardware in place, you can look for a suitable trading platform. Always ensure that your computer is fast enough to handle the processing requirements of the software. Ensure that you get a backup internet connection and power plan. Apart from this, you need the services of a licensed and reliable broker.
What Are the Best Times to Trade?
You might need to give up a lot of your time if you want to increase your chances of succeeding. While it is true that you can get by with only an hour or two of trading, you need a little more than that. Following trading activities round the clock will give you an edge over your competition. A typical good time for stock traders would be the first two hours after the markets open and the last two before they close.
Forex markets allow you the freedom to trade round the clock, and so do a few of the futures markets.
Are There Any Risks Involved?
Any smart trader will try to limit their losses and increase their winnings. Besides, you should only risk capital that you can afford to lose. Ideally, you should risk about 1 percent and not more than 3 percent of your capital. To manage your daily risk, you can set a cap for your wins or losses.
Start by computing your average daily winnings and use that figure as a limit. This way, you will keep yourself from losing more than what you can make on a typical day. Alternatively, you can create an exit plan, which signals when to leave when the losses start piling up.
Strategies for Success
Start small by picking a few stocks, about one or two, and build your way up as you learn. Make small increases to the dollar amount you invest only if it makes sense in light of your experience. Gather as much knowledge as you can, and avoid making decisions based on emotions. During your free time, you can read the daily business reports to gain better insights into different markets.
Formulating a trading plan will help you stay on track even when emotion or foggy thinking push you astray. Trading requires a lot of liquidity, so be sure you have sufficient funds for your desired trading activity before you start. It’s wise to upgrade your skills with training. After all, you will be competing against seasoned professionals in the market.