Buying and selling a financial instrument within a day might sound ambitious, but day traders have been doing it for years. Although it sounds lucrative, small price moves can be counterproductive if you don’t have a proper strategy. Hence, if you are a beginner day trader looking to participate in this trading technique, then it is important for you to strategize. Strategize every single move you make before heading into the market. To make things easier for you, here are 9 strategies and tips that you could follow to have a successful day trading stint.
As a beginner, your goal is to make a profitable day. It doesn’t matter whether it’s huge. Because, if you put all of your funds on the very first day without a proper strategy, then your loss will demotivate you. Hence it is better to start small. Recently, there is a new trend going into the market called fractional shares. Through this trade, you will be able to buy stocks with the money you have. For instance, if Apple’s shares are trading at $300, and you only have $60, then you still can buy a stake. Nowadays, there are plenty of brokers that let you purchase one-fifth of a share. To sum up, only focus on one or two stocks during a session and buy fractional shares to be on the safer side.
Avoid Penny Stocks
Penny Stock is a stock belonging to a relatively smaller company, that trades for less than $5 a share. Although there are sizable gains in trading such stocks, these are often illiquid. Above all, if you haven’t researched properly, there is a chance of losing a significant investment in a short period. Another problem with penny stocks is that the majority of them are only tradeable over-the-counter. Stocks traded over-the-counter need not fulfill minimum standard requirements to remain on the exchange. This standard often serves as a safety cushion for investors. Hence in their absence, the stocks are more prone to fail.
Find favorable entry points
Trading is all about finding the right entry point and exit point. As a beginner, you must find the most favorable entry point with minimum risk. Experts believe that it is important for investors to wait for a scenario where the supply and demand are imbalanced. In the sense, if the supply is limited and there are interested investors, then the price will get higher. On the other hand, if there is an excess supply with no willing buyers, the price will go down. It is important for you to play safe with this fundamental law in finance. To clarify, in stock markets, economic climate and market dynamics influence the supply of stocks whereas the interest rate and economic data influence the demand.
Day traders always take a certain percentage of their money for investing. The remaining money serves as a security, in case something falls apart. It is advisable to keep options while day trading. Because day trading can be volatile sometimes. As a matter of fact, your strategies will fail even if there is a small variation in the economic climate. Hence, successful traders only risk 1.5% of their account per trade. So a key takeaway here is that you must assess your capital and how much of it you are willing to risk per trade.
Not only for day trading, but setting targets and benchmarks will motivate you in achieving your goals. Therefore before the market starts, decide your bets and how far you are willing to risk while buying a long position. In addition to that, there is a stop-loss level in trading, which you should determine in advance. Essentially, a stop-loss level helps an investor to limit their losses on a security position that is expected to make an unfavorable move. Hence, as a beginner, you must strictly stick to your plan and daily day trading targets. Eventually, once you have made enough profits, you can reassess your plans at the last minute to make extra profits.
Understand risk-reward ratio
The risk/reward ratio serves the purpose of giving the investors an idea as to how much they could risk a trade. The essence of the risk/reward ratio is to measure the difference between an entry point to stop-loss and take profit order. If you are confused with the definition, here is a simple example. You should only risk $1 in a trade if you are capable of making a profit of at least $3. Hence, the risk/reward ratio in this case is 1:3. For beginner traders, this is the ratio they must adhere to.
Seize an opportunity without any hesitation
Although we discussed the importance of sticking to a plan, as a beginner trader, you should also be dynamic. In the sense, if you see an opportunity(with a good risk/reward ratio) you should seize it whether or not it is a part of your target. Generally, beginner traders spent too much time analyzing the trading chart candles that they are hesitant to invest even if they forecast a good profit. At the same time, only reassess your plan if the risk/reward ratio pars 1:5 or 1:10. This ratio depends on your target and capability.
Document your day and learn from your mistakes
Experiential learning is more effective than a paid course on day trading you find online. For this, it is important for you to document every single trading move you make. Although it is a tedious task, if you are able to do it, you can always refer back to it to understand your shortcomings. Journaling the trade will help you confirm whether or not you abide by your day trading targets. Above all, it will help you identify the weaker and less-profitable entry points. Therefore, decreasing the chances of your trade to fail.
Patience is the key
Last but not the least, patience is the key to make profits trading. If you are not making enough profits on your first day, don’t risk it all expecting a lucrative return. Even though we live in a post-truth world, day trading must be governed by logic. As a beginner, you should not be greedy. Needless to say, the stock market will definitely test your nerves, especially if you are just starting out. It is up to you to sustain the market dynamics if you are to make profits.