10 Top Day Trading Tips
If you’re looking for some day trading tips, we’ve come up with some great ideas. While it has it’s fair share of risks, there’s certainly a lot of potential.
Day trading has become more popular as a way to make money by stock trading, especially after Timothy Sykes’ story hit the media. Many people got the idea that trading was an easy way to make money working at home in their pajamas.
This idea turned out to be a misconception. Day trading takes a little time to learn, and it can be lucrative from where ever you’re located, but you need to learn the basics before you start.
The first lesson is to understand that investment trading comes with risks and it’s important that you do your homework before committing.
First, What is Day Trading?
Day trading is the process of buying and selling securities, or a financial instrument, during the same day or more than once over the course of a day. Because many brokerages have moved to online trading, you can conduct your business from your location.
Basically, a person involved in day trading is looking to make money by taking advantage of little price movements in individual assets (stocks) or indexes. Day traders look for three different things in a stock: volatility, liquidity, and trading volume. To explain these terms:
- Volatility is the measure of expected daily price ranges, such as stocks from a corporation that experiences a higher rate of variance in its cash flow. These situations can be capitalized on by a day trader. The higher the volatility can mean higher profits or greater losses.
- Liquidity in the financial market refers to the ease and price in which a security can be obtained. Liquidity allows for easy entrance and exit from a stock at a good price. The more liquid a stock is, the more easily it is for day trading. Liquid stocks also tend to be cheaper than other stocks. Stocks from a higher market capitalization corporation are generally more liquid because it’s easier to locate buyers and sellers.
- Trading volume is an excellent indicator to a day trader to the stock’s volatility and liquidity because of the volume. The volume is how many times the stock is bought sold within a particular period of time, which is usually averaged daily. The more volume reflects the interest in a particular stock, but it does not indicate if that interest is positive or negative. Often, when the trade volume increases it is indicative of price movements that are going to transpire. One tool day traders use is the Trade Volume Index (TVI) to help decide whether to buy a stock or not because of the amount of money flow into and out of an asset.
In 1999, Timothy Sykes seemed to be like most high school students, but he soon became famous with a story that impacted the world of day trading. Sykes saved his gift money over the years and it to start day trading penny stocks.
His investment was approximately $12,500, and it earned him about $1.65 million by his 21st birthday. He’s now part of the social trading platform Profit.ly, and regularly post live feeds to site members from a personal.
Many thought if a young person could do this without being an expert, then it must not be that complicated. This is partially true, but Sykes spent hours studying before he started.
10 Day Trading Tips
To get you on your way day trading, here are some basic rules and tips:
1) While you’re learning, take advantage of free resources like Youtube videos and blog posts. When you feel ready, set up a practice account online (some websites allow you to do this) and test a few trades.
2) Have an enter price, exit price, and an escape price. Before you press the button to finalize the deal, you need to know when to get in, when to get out, and a strategy to get out if things are not going as expected.
3) Always set your price targets before you do it and stick with your decisions. It will help you keep from being overly greedy if the price spikes and limit any losses.
4 ) When the market opens, avoid trading within the first 15 minutes, especially if you are a newbie to day trading. Those 15 minutes of action are full of market orders placed the night before and panic trades. It pays to wait until you’re able to see a rewarding opportunity.
5) To find an entry point, look for situations where supply and demand are drastically imbalanced. If a supply is nearly gone and there are still buyers, then the price will go up, and if there is a surplus of supply and no buyers, the price will go down.
6) An important lesson is to set a proper risk-reward ratio. At least 3:1 will allow you to win big and lose small and can help you come out ahead if you experience losses on several trades.
7) Be patient and don’t make a trade because you feel like you need to “just do something.” Make your trade plan and trade according to your plan. It takes discipline, and impulsive decisions can become your worst enemy if you’re working alone.
8) Don’t risk too much capital on one trade and only trade with money you can afford to lose. Budget your day trading and don’t exceed it thinking you are missing an unseen opportunity.
9) Don’t limit yourself to day trading stocks. There are three other asset classes to keep in mind: forex, futures, and options. Any of these can present an appealing opportunity.
10) As you go, you’ll learn from your experiences and as you’re learning don’t second guess yourself or your set rules established for getting in and out. Every day trader losses at times, so don’t be too rough on yourself when things don’t go as planned.
Pros of Day Trading
The biggest pro of day trading is that you can earn some serious money if you can afford to take the risk. As you learn the inner workings of the marketplace and create your enter and exit plans, you can increase the returns on your money. If you enjoy cliffhanger moments, you can enjoy them regularly. If day trading becomes your job, then you can gain freedom from punching a clock. You can set your schedule, work from anywhere, and earn an unlimited amount of income versus a salary.
Cons of Day Trading
Day trading carries a high risk because there are no guarantees that you will make any money and you can lose the money you have. There is some expense involved outside of having a current computer, and you may need to purchase software to help spot price variations and access financial information.
You will need some capital to get started, and the money could be lost. Day trading can be stressful and time-consuming, especially when you begin, so pace yourself.
The Final Verdict
Day trading is risky, but it can also be rewarding. As a beginner, spend the time to learn the ins and outs of trading and spend time watching the marketplace. Initially, you may want to get a mentor to help you. You will learn from a seasoned person that will help you avoid pitfalls and will help reinforce what you have learned.