The potential to make huge profits as a day trader is undoubtedly an attractive proposition. Online day trading has even made the prospects seem more realistic. However, as a beginner, the trading mechanics might seem overwhelming at first. That shouldn't be a reason to worry.
Instead, it should give you motivation to study the facts. The secret to becoming a good trader is investing heavily in initial training, reading extensively, conducting intensive research, and practicing thoroughly before attempting actual trading. You will also find the following tips useful along your journey as a day trader.
Select the Right Market for You
While day trading can involve virtually all tradable securities, it is good to select a niche and be very good at it. Many day traders specialize in any of the following assets: currencies, stocks, options, futures, and commodity indices.
Each financial instrument requires different day trading strategies. Also, there are different rules for trading in every market. In some stock markets, for example, there is a minimum amount of capital required for one to be allowed to trade.
In the US, for example, a day trader must have at least $25,000. The forex markets, on the other hand, don't have strict capital requirements. A beginner could possibly start on forex with as little as $100.
Discover What You Need For Day Trading
To become a successful trader, you need to put a few things together:
- Credible brokerage services. You need a broker with direct access trading privileges. With the advent of online trading platforms, several firms claim to offer brokerage services even at ridiculously low rates. Some of them route orders through third parties, market makers. Using such agents can lead to significant delays in processing orders or increase costs.
- A good trading platform. A good broker should provide powerful software tools to facilitate trading. The platform should be capable of generating technical information like charts and process orders quickly. It should also not have a steep learning curve.
- A computer and stable internet. If your trading platform is not web-based, you might need to check with the provider to know the exact system requirements before downloading. Otherwise, all you'll need is a computer and a reliable source of internet.
Manage Risks Efficiently
Day trading is a risky venture. A proper risk management strategy is important to ensure you do not blow your trading account in seconds. Indeed, some credible research has shown that the majority of day traders sustain heavy losses in the long run. Set aside the amount of capital you are willing to lose on any given day. A stop-loss level is the best way to limit your losses in case of any market downturn. A good trader should also determine a realistic point at which they should exit their positions. Aim for a risk-reward ratio of 1:3 for a start.
After establishing a trading plan, you need to be patient and disciplined enough to succeed. Someone who is just starting should not rush to trade. Instead, read the market for an hour or two. Remember that diversifying your capital over many trades is less risky than focusing on one trade.