While day trading has been around for a few decades, its popularity skyrocketed in recent years. That’s because more and more people are looking for ways to achieve financial freedom. And, explore the possibilities of living life on their own rules. Even with the market volatility in place, more people are into day trading.
However, with so many traders investing, chances of daily profit may increase. But, they are a certain amount of risks associated with it. This article on day trading provides insights surrounding the whole concept and explains basic day trading strategies. That way, you can decide for yourself whether or not to get into day trading as of now.
Day Trading: An Overview
Regardless of how you get attracted to day trading, it is important to have a clear understanding of it. So, what is day trading? It is a speculative style of trading where both the opening and closing of a certain position can be conducted on the same day.
For example, when you open a new position at around ten in the morning and close it by two in the afternoon on the same day, it’s called a day trade. However, if you intend to close the same position the following day, it won’t be considered a day trade.
In short, the holding period on a day trade has to be somewhere from a few seconds to a few hours. Moreover, you have to close the position by the end of the day. That way, you can complete a day trade. Otherwise called active traders, the day traders use various trading strategies and technical analysis to try and make a profit within a short time.
Keep in your mind that a successful day trader doesn’t pick up random stocks and trade them. There are different strategies involved that have parameters regarding money management and rules to day trading.
Some day traders remain active throughout the day and make several trades. Whereas, some opens and close one position in a day. While there are trading markets such as foreign exchange, stocks, and so on, it is better to start day trading futures contracts.
Anyone can choose day trading as a full-time career or part-time hobby. Also, it is a great option for people who like to work for themselves and make money day trading online from the comforts of their homes.
How can you start day trading?
With plenty of active day traders around, you can get more information on how to day trade. And, it is easy to get started with it as well. All you have to do is open an account. However, buying and selling orders after opening the account for thrill and excitement is not the best way to get started.
You need to educate yourself first as everyone does in any profession. Also, you need to practice day trading with the gathered knowledge tediously. Moreover, it can take a few months or even a year to enjoy the profits.
Day trading strategies and tips for beginner traders:
Before getting started with day trading, you should remember a few important things. Here are some information and strategies that you should consider before starting day trading. These include certain things such as the amount of money you need, how to practice the right way, and improving your skills as you become acquainted with this industry.
- Time Management
To begin with, day trading isn’t about getting rich by doing a few things. Or, it is not something that takes several years to learn and implement those techniques. In general, you can expect to spend six months or a year improving your skills.
And, you can do that by practicing a strategy until you are comfortable with it. As such, you can take risk of your capital. This is where most beginner day traders make mistakes.
They don’t practice what they have learned in the form of strategies into the demo trading account. These accounts are trading simulators where everyone should practice before putting real money at risk.
Hence, they don’t know how strategies work in reality and how to make adjustments according to the changing market conditions. Moreover, the demo account allows you to hone your psychology skills.
These include remaining focused on the work, staying disciplined, and having a lot of patience. When you start practicing, you will notice that you perform better at specific times of the day. Hence, concentrate on those times.
- Different styles adopted by day traders
Day trading involves several trading styles. Some day traders remain active and catch small price movements with big position sizes. Traders who do that are called scalpers. And, they make lots of trades throughout the day. Whereas, other traders capture larger price movements.
As such, their gains continue apart from running the risk of price reversal. Moreover, these trades last longer compared to the scalper’s trade. Almost every trader makes good use of the price charts to decide when they are going to execute trades.
On the other hand, many traders depend on Level II trading data that provides them with greater insights about trading. A handful of day traders focus on statistic tendencies that are researched well or follow specific news.
- Capital requirements
The capital required for day trade depends on the markets. And, different markets need different amounts of money. So, if you want to day trade futures contracts, you can start as little as with a $1000 deposit. However, the more money, the better it gets.
Day trading on some of the popular contracts starts with $3500, or $7000, or even more. While leverage can make your returns more, it can create massive losses as well. Moreover, it can even result in a negative balance in your account. It means you owe money to the broker.
- Day trading markets
Knowing about the right market where you can trade is another important aspect of day trading. So, if you don’t want to trade big or don’t have sufficient capital, forex trading might be right for you because of the low minimum initial outlay.
However, if you have enough money to trade with, a futures contract is perfect for you. This involves buying and selling a portion of assets such as crude oil, gold, and so on. And, you have to make the trade within a specific timeframe.
Moreover, if you have sufficient money you can invest in stocks as well other than trade futures. Each market has its variations and it requires time to get hold of these things. So, get familiarized with one market instead of trying your hands on each of them.
- Software and hardware requirements
You need a computer and a high-speed internet connection for day trade. Also, it is good to have more than one monitor so that you can keep tabs on several trading charts. Moreover, having a smartphone with a data plan comes in handy if you lose your internet connectivity.
You need a broker who will provide you with the market data so that you can carry out trades. A trading platform is another important thing that you will need for day trading. However, it is unwise to opt for the trading platform that your broker will provide. The trading platform is where you can get the charting software. It is required for day trading.
- Always stay ahead
While it may sound tempting, try to avoid all kinds of strategies and products that promise to deliver overnight success. Never fall for these kinds of traps. It is always better to invest time and money in learning something that helps you in day trading.
There is no shortage of books by prominent writers on day trading. Also, you can ask someone for mentoring whom you follow. And, you feel that their methods will work with your situation and personality.
Stop investing in trade signals for each month or other forms of expensive monthly subscriptions. Their main purpose is to make you reliant on their services. Rather, it is better to invest in yourself from the beginning, learn from your and others’ mistakes, and never stop learning new things about trading.
Characteristics of a successful day trader
While learning the basics of day trading is the first step, this doesn’t guarantee you success alone. You have to be stricter on your emotions, plan your trades, and stick to them. Information gathering and gaining practical experience are important for your trading journey.
Regardless of how experienced you are, never work with the money that can’t afford to lose. Even if you have a robust strategy in place, the results could be negative and volatile. Whenever that happens, never overextend yourself in the hope of getting it back.
Conclusion
While day trading has become a controversial phenomenon these days, it provides you with an opportunity to earn a profit. Day traders, regardless of individual or institutional, play a key role in the marketplace. They keep markets liquid and efficient. There is no denying that day trading is popular among immature traders. But it is best left to those people who have the right resource and necessary skillset needed to make day trading successful.
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Risk Disclosure:
Futures and forex trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment. Risk capital is money that can be lost without jeopardizing ones’ financial security or life style. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Past performance is not necessarily indicative of future results.
Hypothetical Performance Disclosure:
Hypothetical performance results have many inherent limitations, some of which are described below. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown; in fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program. One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk of actual trading. for example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all which can adversely affect trading results.
You can read more here: Risk Disclosure
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