Beginner’s Guide to Day Trading

Day trading is a high-risk – and potentially high-reward – practice of buying and selling stocks over limited periods of time, such as during the same day, to take advantage of short-term price fluctuations. While risk will always be part of the day trading equation, the most successful day traders have the discipline to craft a plan and stick to it. By following a few simple steps, you can significantly increase your chances of turning a profit on your day trading activities.

Profits on day trading can often be significant – but expect most of your trades to yield smaller gains. That means you do not want a pay-per-trade system eating into your profits. Establish an account with an online trader that offers unlimited trading and does not charge per transaction. You may make dozens of trades over the course of a day, and per-trade fees can add up quickly.No matter which exchange you trade on, there are too many companies for you to track knowledgeably. As a day trader, you should look to become an expert in one thing – whether it is energy providers, small cap companies, or companies trading below book value. When you narrow your focus you are much more able to spot opportunities, and you will spend much less time making uninformed and unprofitable trades.

Learn the trading habits of the stocks you choose to follow, and look for any large trades or momentum. An initial spike in trading volume often leads to additional spikes as other investors jump on the bandwagon. If you can spot spikes early, you can get in on the ground floor as the stock increases in price. Some day traders trade on momentum, such as positive press coverage, rosy economic forecasts, or optimism around a particular industry. The best day traders will spend hours before markets open pouring over news and looking for companies that have or may gain momentum that could lead to stock price increases.

You will lose money sometimes. If you are uncomfortable with that notion – or if you do not have the money to risk – you should avoid day trading and focus your investment efforts on opportunities with less volatility. Too many day traders make losses much worse than they need to be because they will not accept that they have lost money on a trade. For example, you may purchase 100 shares of an energy company because you believe it will receive a favorable bump from a report on rising home heating oil prices. Instead of the bump, the stock loses half a point. Clearly your assumption was wrong, and now is the time to sell and minimise the damage. But many day traders will continue to stubbornly hold the stock, and will compound their losses.

A little bit of greed is good in day trading, but too much greed will wipe out your capital quickly. No stock increases in value forever, and you have to resist the temptation to retain a high-performing stock for too long. Once a trade has made you an appropriate profit, based on your expectations and the rules you have established, have the discipline to sell the stock before it begins to slide. Every now and then you may miss out on an opportunity to realise additional profits – but more often than not, you will save yourself from a painful loss

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