Introduction:
If you are a beginner investor, there is quite a number of financial markets available for you to trade. There are stock, forex, options, even the novel cryptocurrency, and more. There are also numerous strategies for trading in them.
Here, we will be introducing day trading, an exciting trading style with which you can turn trading into a profession and quit your day job.
What is Day Trading?
Day Trading is exactly as its name implies: it is a style of buying and selling financial instruments by opening and closing multiple positions in a single day. As a result, day traders never leave positions open through the night. Instead, they ensure that the trades they initiate are exited within a short time in the day.
Day Trading.
Day trading can be extremely lucrative. However, it has its peculiar needs. For example, you might have to leave your full-time job for it.
Top 3 Day Trading Tips
If you are willing to ditch your day job for day trading, great. That can be one of the best decisions of your life. Day trading as a career is, however, fraught with risks. But if you diligently adhere to the following three tips, you will be able to effectively manage the risks.
Mind
Trading, in whatever form, is a lot of psychology. But perhaps, there is no other trading style that brings traders’ psychological flaws to the fore as much as day trading does. So, if you are going to do it well, you will have to work on your psychology.
As a day trader, stay away from greed and do not court fear. And also, embrace patience. Be realistic about your profits too. Day trading is neither gambling nor a get-rich-quick affair. If you want to profit with it, you have to work on bettering your mind first.
Method
Day trading is a highly risky business. But with a proven method, you can limit its risks. A proven method comes from knowledge. Hence, you have to take your time to learn basic trading principles and to define the conditions only under which you will be trading. Also, you will have to be keeping up with the news.
No matter the method you devise, we encourage you start small. In fact, in the beginning, you should focus on just one or two stocks per day. Apart from being less stressful, doing that will also ensure that, in both analysis and trading, you do not spread yourself too thin. Plus, you should avoid penny stocks because they are often illiquid.
Money
Day trading is not like any other trading style. It has its specific requirements, which you must be ready to meet once you sign up for it. For example, the law requires you to have at least $25,000 in capital before you can day trade stocks. Then, you have to put in place tactics to protect that money.
Irrespective of the market you trade, you can use the 2% Rule and the 6% Rule for that. The former recommends that you should not risk more than 2% of your trading capital on any single trade; the latter, on the other hand, suggests that you should not trade again for the rest of the month once you have already lost up to 6% of your capital in the month.