Tips on Being a Day Trader
Have you ever wondered what it’s like to trade stocks? One way of getting involved in stocks is being a day trader. Day trading refers to buying and selling stocks and indices within the span of a day. All trades must be closed before the market closes but sometimes day traders are tempted at the prospect of what the market can do overnight and whether it will open at a better position. This is risky because any news or major transactions that take place in the cash market can tip the scale against you.
This post will underline what life is like doing day trading with the following five tips.
1. Knowledge is key.
There are two ways of working as a day trader. The first is to trade blindly and follow your hunch on every position you take. This is sure way of losing your funds in no time. The second is way to study market trends, follow relevant news closely, study the market’s charts, read technical analyses. Long term success is only possible if you have a tried and tested strategy to follow.
2. Equip yourself with the tools needed.
A decent internet connection to a working computer would be a good starting point. Over time you may feel the need to add a few display monitors to your set up to follow world news, market trends, stock charts and so on. The best thing you can do for yourself is to trade on a demo account for one to three months. I know it’s very tempting to want to take every opportunity to make money but the first few weeks and months teach you a lot and it’s definitely not worth the risk to put in your hard earned money into a game you don’t know the ABC of.
3. Come up with a plan.
For this you might have study market charts in depth and study historical trends and learn how to do forecasting. But more importantly, you must have a daily plan on when you will start a trade and what position you will close it at. Planning may also involve setting aside a chunk of time and putting aside a set amount of money that will be your capital.
4. Check in with yourself.
Decide what your monthly goal is and understand what your risk tolerance is. The bigger your stakes, the more will be your potential to earn but the opposite is also true. Every penny you invest in stocks could vanish into thin air so be mentally prepared for that. Trading is not gambling but is often considered to be addictive and traders may exhibit the behaviours of a gambler. To know where you stand, it’s important to check your thoughts daily. If it helps, write on a journal to work through your thoughts. If you see a red flag, take a few days off to introspect and to remind yourself that trading is only a means like any other source of income. Don’t let it run your life.
5. Don’t rely on trading as your only means of income.
Even with tried and tested methods, there are no guarantees that you will not incur a major loss. Consider how major world events, natural disasters, wars and so forth affect world markets. One negative speech by a powerful world leader can send tremors across all stock markets. Believe it or not, some estimates suggest that over 90% of day traders lose money over a long period of time. Don’t let small gains persuade you to leave your job. Let your day job be your back up plan.
