If you are looking for a quick way to make some extra money, try your hand at day trading. Day trading is a form of stock trading that involves buying and selling one or more financial instruments within a single trading day. Unlike position or swing trading, it does not allow overnight positions and focuses on profiting from minor price fluctuations. Yet, it is not as active as scalp trading, wherein positions are typically held for seconds or minutes.
While it involves some risk, day trading can be very lucrative if it is correctly done. Follow these four tips to carve a successful career in day trading.
Gain the Necessary Knowledge
If you are new to day trading, it is advisable that you use a virtual platform to practice trading first before you invest actual money. This will enable you to learn the basic trading procedures and methods and get in touch with your intuition.
In addition to gaining basic knowledge, you also need to stay up-to-date with the latest developments in the stock market and other events that have an impact on stocks, such as the economic outlook and the government’s plans for interest rates. Create a list of stocks you want to trade and do research on the selected companies. Make it a habit to regularly visit financial websites and scan business newspapers.
Determine How Much to Risk
It is essential to assess how much you are willing to risk per trade. Many successful traders risk less than 2 percent of their accounts on each trade. For instance, if you have $40,000 in your trading account and risk 0.5 percent of your capital per trade, you can only lose a maximum of $200 on each trade. Set aside a surplus amount that you can afford to lose, so that you will not get into financial trouble.
Invest Enough Time
Day trading is an arduous activity that can take up a large part of your day. It requires you to constantly monitor the market and spot opportunities, which can occur anytime during trading hours. The ability to move quickly is part and parcel of successful trading. Make sure you have enough time to spare before you get into day trading.
This is one of the most important day trading strategies for beginners. When you are starting out, you should focus on just one or two stocks during a trading session. This makes it easier for you to track and find opportunities. It is also a good idea to trade fractional shares, which allows you to specify smaller amounts you wish to invest. For example, if a company’s shares are trading at $100 and you only want to purchase $50 worth, some brokers will let you buy half a share.
Becoming a day trader is not only financially rewarding; it also gives you the freedom to work anytime, anywhere. If you want to start your trading career on the right foot, it is recommended that you find a mentor to show you the ropes.
Sources: inc.com / ragingbull.com