Day trading involves taking advantage of minute price movements in the market to sell and buy a security such as stock, fiat currency, or cryptocurrency, among others within a single day or several times within the day. The profitability of day trading is dependent on making the right moves.
In this regard, it can be particularly precarious for beginners. As such, this article constitutes a day trading cheat sheet. We provide a guideline on day trading for dummies that will enable them to make fast money online.
Day Trading For Beginners
The attractiveness of day trading stems from a trader’s capability to be successful and earn considerable returns by only participating in the market for a few hours. Additionally, the increased popularity of online trading platforms has made it easier for more people to day-trade.
Previously, this was only exclusive to large brokerage companies and financial institutions. As such, online trading firms have levelled the playing field further accelerating the appeal of day trading.
Regardless of this allure, traders should be cautious since success is not always guaranteed. Analysts postulate that the first year is usually the toughest owing to the numerous ups and downs beginners are likely to face. Evidently, it is not all rosy.
To this end, they advise that the traders’ primary objective during this period should be ensuring that they do not lose their initial investment. It is also important for beginners to internalize several guiding principles on which they will base their day trading. These are summarised below.
Day Trading Tips
You can not just take the money and enter financial markets. There are many compulsory steps to do before begin trading. Especially if you are going to be a day trader. Hence, we give you some tips and tricks for this type of trading. Use them to be more successful.
Come Up With Or Understand A Strategy
Day trading can never be effective if carried out on impulse. A trader’s success relies on the rehearsal of sound and coherent tactics that provide an advantage. Creating a strategy requires knowledge of the financial markets. You first need to learn the trading action plans, market updates, and events that affect the prices of financial instruments.
Also, establish the channel you intend to use to trade and what to do if things do not go according to plan. Identify the amount you are willing to risk. Lastly, determine the odds of a trade being profitable. Upon carrying out this analysis, you should ask yourself if upon successfully completing 100 similar trades, a trend will emerge. This becomes your strategy. The second approach is understanding another trader’s method.
Create A Risk Management Plan
You should institute measures that will prevent the occurrence of an undesirable result, thereby mitigating against the potential for losses. Brokers provide tools such as market orders, stop orders, or limit orders.
The first tool ensures that a trade is only performed once the best price has become available. The second tool stops trading when the price of the financial instrument goes below a certain figure. A limit order does not perform a trade notifies a trader when a price is reached, thereby enabling precision trading.
Trying the techniques which will eventually grow into strategies, therefore, requires practice. As a beginner, you need to implement the same method multiple times. The good news is that practising does not entail using real money.
You may practice using trading games or demo accounts provided by developers and online brokers, respectively. These two avenues give their customers virtual currencies and subsequently simulate the real trading world. A trader then uses the virtual cash to make trades. They cushion a beginner against losses because you will not risk real money. Notably, you should only practice the strategy you intend to internalize. Stick to it and perfect it.
Establish The Amount Of Money You Will Need
Practicing and extensive research will help you determine the capital you require and what you are willing to risk in each trade. Different brokers have minimum deposit requirements for day traders.
For instance, in the UK, IG requires an individual to have a minimum of £250. However, other factors such as the markets you opt to trade in, the existing conditions, and personal preferences make the exact cost of day trading variable given that it is different.
In the USA, the minimum legal requirement is $25,000 when it comes to stocks. When dealing with forex, there is no legal minimum but starting with at least $500 is advisable. As a result of these factors, it is important for traders to have a buffer in that they should deposit more than the stipulated amount.
Consider Objectives And Limiting Factors
What is your intention while day trading? Is it because you want secondary income, have been fired, or intend to quit? Can you commit to trading multiple times in a day, thereby dedicating several hours into the venture? Do you have enough finances to facilitate day trading?
Answering such questions is a vital step for any beginner. We reiterate that profitability in day trading takes some time before it happens; somewhere between six months to one year. It might even take longer.
As such, you should determine whether you are willing to wait this long while still committing several hours of your day.
As a beginner, you should also wait until you have enough capital. Also, you should not quit your current job, if employed, until consistent profits start streaming in.
Select A Broker
Notably, some brokers do not have the facilities to enable a large volume of trades as is characteristic of day trading. As such, identify the best broker for online day trading in the UK or in overseas countries. Examples include Interactive Brokers, IG, TD Ameritrade, and Tradestation. The broker should have a good reputation.
Make trades particularly when the market is less volatile. It is worth noting that the markets are usually highly volatile in the opening and closing minutes. As a beginner, do not make any move during the first 20 minutes. Instead, study everything. It is recommended to trade in the mid-hours of a trading day. Also, always maintain your cool and do not make decisions anchored on emotions.
Conclusion: Patience For Profits
Day trading entails buying and selling a security within a day, that is, holding a position for only a few hours. It requires making the right moves anchored on sound strategies. For a beginner to get to profitability, patience is recommended. Additionally, there are guiding principles that you should follow. It is important to follow them.
Create a strategy and stick with it. Secondly, come up with a risk management plan. Thirdly, practice the strategies numerous times to enable you to master everything. Fourthly, determine the capital you need and identify the amount of money you are willing to risk in every trade. Fifthly, consider your objectives and limiting factors. Sixthly, select a reputable broker, and lastly, time trades once you start trading.
The exact number depends on market conditions. A trader can make multiple trades within a day. However, as a beginner, you should mainly focus on one or two stocks or currencies. This will make tracking and decision-making easier. It is also possible to exploit new opportunities.
Yes. Importantly, making money is not immediate and a beginner has to wait for a period of between six months to one year, or even longer. Making money is also dependent on having the right strategies and making the right moves.