What is day trading about?
Day trading is an art. It is the art of buying or selling financial securities that leads to profits and losses. For any individual entering day trading, whether they have been an investor, or a midterm trader or even a trend trader, it is important to establish the fact that the rules of trading differ based on the time period you choose.
Before we go into detail about day trading, we need to understand What is a day trader. In simple terms, an individual that aims to enter a position during the day and exit the position – preferably with profits before the end of the day is known as a day trader.
This process can be called intraday trading, and those that practice this form of trading are called day traders. Day traders do not leave their positions open overnight.
The tips you need to become a successful day trader!
Many look down upon day trading and regard it as a gamble, to each their own! At the same time, there are also day traders across the globe that are passionate about learning new skills that will secure them better profits.
For those that look at day trading as a technical puzzle that they are eager to decode, there are a few tips that might help. Here are a few tips to keep in mind as a stockbroker when indulging in day trading:
1. Choose liquid instruments.
Intraday traders or day traders experience much more volatility than others. In fact, they rely on this volatility to make them money. Avoid catching the wrong part of this liquidity.
Allow us to explain –
With every financial instrument, it has an “average range” of trades each day. Find out this “average range” and make sure you are at the high or the low end of the range when entering a position, so you get to see most of that volatility.
2. Knowledge is your biggest weapon.
Whether it is knowledge about the internal workings of a company, or how a piece of news will cause changes in the workings of a company or how a piece of news will make changes to a certain economy. These are very important factors to keep in mind while trading in any market.
Knowledge about how different factors affect price action is what every day trader yearn for, and this is the one factor that differentiates a successful trader from a novice.
3. Use stop loss and take profit limits.
The usage benefits of stop loss and take profit levels have been experienced by a lot of individuals in the market. There are many that trade without stop loss and take profit limits, but these individuals have to be glued to their screens, or they end up losing more money than they have invested.
Apart from saving your eyes and brain the unnecessary strain, a stop loss will effectively stop your account from running major losses. Target profits are very useful because, with intraday trading, it is common knowledge that the volatility does not let the price stay at a certain level for long.
At times when the prices are making major moves within seconds, you could lose your window to book maximum profits.
4. Choose a platform wisely.
Granted, you do not learn to use any software in a matter of minutes, but the software should be such that you do not need much time to familiarize yourself with the workings of it.
Day trading is all about quick execution of orders and preventive planning. Using a platform that you are comfortable with is crucial to finding success as a day trader.
Obviously, it is critical to choose a stock brokerage interface that you are comfortable with. You should be able to operate the interface without putting much thought into it. The preference of what trading software to use differs from person to person.
There are companies like Alpaca that allow you to deploy your own algo trading bot without charging commissions! An easy to use interface with stand out colors make the trading experience very interactive and pop – up notifications keep you updated with the latest market news at all times!
5. Do not chase trades
Make a solid trading plan and stick to it!
Do not go chasing trades just because the price came “close” to what you thought it will be. The market gives a lot of opportunities to trade. But once you have lost your money, you find it hard to recover it.
Most traders fail to stick to a plan just because they are too impatient. They make hasty decisions, and on many occasions, take steps without planning in advance, and that is a recipe for disaster with day trading!
Even as a long term investor, there might still be a chance to get out before it is too late. But with intraday trading, there is hardly any chance to save losses.
6. Use the plethora of tech options available to assist you!
Get price alerts and news alerts delivered straight into your phone!
There are many factors that move markets and price action and market news are two of the main indicators that have the potential to change the direction of the market! Get these updates delivered right into the palm of your hand!
Make use of the different paper trading environments at your disposal to check each and every strategy and backtest each strategy before deploying it to the markets.
The emerging trend technological with intraday trading is using bots. Since the volatility of the market does not allow the window of opportunity to stay open too long, a majority of market participants make use of bots. These bots are called algo bots, and they can be developed by anybody that has coding skills.
The use of bots in trading has come a long way. With the first forms of bots being limit orders and stop losses and take profit levels, the new age bots can backtest strategies and get triggered into action when the price reaches certain levels.
7. Always see all trades as learning opportunities
As a successful trader, you must always be on the lookout for how you are vulnerable to lose a trade.
Keeping a lookout will ensure an active mind and helps make a solid trading strategy. By listing and rectifying all the ways that you can make losses, you develop a trading strategy that is shielded from all the problems that you can assume. Thus the chances of you encountering unprecedented problems are very low. This increases your chances of making successful trades rather than failed trades.
Although intraday trading is an art and can only be mastered by a few, there are new people discovering new strategies every day. Use all these tips listed above to formulate your own strategy and enter the markets! But do make sure you have a solid trading plan and have backtested it on a paper trading environment before you implement it!