Day trading is when you hold a market position for a short period of time, typically buying and selling on the same day.
This allows you to take advantage of small price movements and many day traders will trade multiple times in a single day.
However, these small price movements, while they can be lucrative, can also be risky for those who are beginners and do not have a well-thought-out trading strategy.
Here we will look at some basic day trading strategies and tips that beginners can use.
Do Your Homework
Day trading requires research. Knowledge is power and will increase your chances of success. You need to understand the different strategies that are available, how day trading works and all aspects that may affect the market. This includes the latest news, economic outlooks, financial news, political news and more.
Set Aside Capital and Set Your Limits
Before you get started, you need to set aside your capital for trading and work out how much you can spend on each trade. This is known as your risk and a general rule of thumb says you should not spend more than 2% of your capital on any single trade. You also need to set your stop limits to limit the amount of loss you can see on any one trade.
Find a Strategy that Works for You
To do this, you need to sit down with a pencil and paper and be realistic about your personality and trading expectations. The best strategy for you is the one that fits with your goals and temperament. You will need to sit down and analyze charts and historical data. Make sure you understand that a strategy that worked in the past does not guarantee it will work in the future, but it is a good starting point in choosing a strategy.
Stick to Your Strategy
Once you have chosen a strategy, make sure to stick to your strategy. Day trading is quick and beginners often find themselves getting flustered under pressure, but if you have a good plan and you stick to the plan, you can leave the emotion out of it and trade like you planned to. Stick to the day trading mantra: “Plan your trades; then trade your plan.”
Understand that Losses are Expected
It is important to understand that losses are normal when you are trading. Every day trader loses, even the most experienced traders. Knowing this will help you keep your emotions in check when a trade does not go your way. If you followed your trading strategy, don’t get stressed by losses; simply look back and see if you could have improved your strategy in any way and learn from experience.
Having this mindset will help you keep emotions out of your trading which commonly leads to poor judgement and bad decisions and this, together with your risk management which you set up before you started will help to improve your chances of success as a day trader.
