Day Trading

By Vikram 24 Comments 23 Nov 2018
Day Trading

An Introduction

Day trading refers to a style of trading in which positions are entered and exited on the same day. Unlike position and swing traders, a day trader does not hold any positions overnight, and all trades are closed by the end of the trading session using a profit target, stop loss or time exit (such as an end-of-day exit). Day traders typically use technical analysis to find and exploit intraday price fluctuations, viewing intraday price charts with minute, tick and/or volume based charting intervals.

Because trades are held for a period of minutes to hours, large price moves are uncommon, so day traders rely on frequent small gains to build profits. To leverage their buying power, day traders usually trade with margin. Day trading is a full-time job since positions have to be constantly monitored and traders need to be immediately aware of any interruptions to the technology chain. (for example, a lost Internet connection or a trading platform issue).

Day Trading Strategies for Beginners

Here are 10 strategies on How to Day Trade for Beginners:–

1. Look for scenarios where supply and demand are drastically imbalanced, and use these as your entry points :-

The financial markets are like anything else in life: if supply is near exhaustion and there are still willing buyers, price is about to go higher. If there is excess supply and no willing buyers, price will go down. At Online Trading Academy, students are taught to identify these turning points on a price chart and you can do the same by studying historical examples.

2. Beginners should always set day trading price targets before jumping in :-

If you’re buying a long position, decide in advance how much profit is acceptable as well as a stop-loss level if the trade turns against you. Then, stick by your decisions. This limits your potential loss and keeps you from being overly greedy if price spikes to an untenable level. Exception: in a strong market it’s acceptable to set a new profit goal and stop-loss level once your initial target is achieved.

3. Insist on a risk-reward ratio of at least 3:1 when setting your day trading targets :-

One of the most important lessons in stock trading for beginners is to understand a proper risk-reward ratio. As the Online Trading Academy instructors point out, this allows you to “lose small and win big” and come out ahead even if you have losses on many of your trades. In fact, once you gain some experience, risk-reward ratios of as high as 5:1 or even higher may be attainable.

4. Day trading requires patience, so be a patient trader :-

Paradoxical though it may seem, successful day traders often don’t trade every day. They may be in the market, at their computer, but if they don’t see any opportunities that meet their criteria they will not execute a trade that day. That’s a lot better than going against your own best judgment out of an impatient desire to “just do something.” Plan your trades, then trade your plan.

5. Day trading also requires discipline, especially for beginners :-

Beginners need to set a trading plan and stick to it. At Online Trading Academy, students execute live stock trades in the market under the guidance of a senior instructor until right decisions become second nature. If you’re trading on your own, impulsive behavior can be your worst enemy. Greed can keep you in a position for too long and fear can cause you to bail out too soon. Don’t expect to get rich on a single trade.

6. Don’t be afraid to push the “order” button and execute your trades :-

Novice day traders often face “paralysis by analysis” because they get wrapped up in watching the candles and the Level 2 columns on their screen and can’t act quickly when opportunity presents itself. If you’re disciplined and work your plan, actually placing the order should be automatic. If you’re wrong, your stops will get you out without major damage.

7. Only day trade with money you can afford to lose :-

Successful traders have a “little bucket” of risk capital and a “big bucket” of money they’re saving for retirement or another long-term goal. Big bucket money tends to be invested more conservatively and in longer-duration positions. It’s not absolutely forbidden to use this money occasionally for a day trade, but the odds should be very high in your favor.

8. Never risk too much capital on one trade :-

Set a percentage of your total day trading budget (which might be anywhere from 2% to 10%, depending on how much money you have) and don’t allow the size of your position to exceed it. Otherwise, you may miss out on an even better opportunity in the market.

9. Don’t limit day trading to stocks :-

Set a percentage of your total day trading budget (which might be anywhere from 2% to 10%, depending on how much money you have) and don’t allow the size of your position to exceed it. Otherwise, you may miss out on an even better opportunity in the market.

10. Don’t second-guess yourself, but do learn from experience :-

Set a percentage of your total day trading budget (which might be anywhere from 2% to 10%, depending on how much money you have) and don’t allow the size of your position to exceed it. Otherwise, you may miss out on an even better opportunity in the market.

Profit and Risks

Because of the nature of financial leverage and the rapid returns that are possible, day trading results can range from extremely profitable to extremely unprofitable, and high-risk profile traders can generate either huge percentage returns or huge percentage losses. Because of the high profits (and losses) that day trading makes possible, these traders are sometimes portrayed as “bandits” or “gamblers” by other investors.

Day trading is risky, especially if any of the following is present while trading :–

  • Trading a loser’s game/system rather than a game that’s at least winnable.
  • Inadequate risk capital with the accompanying excess stress of having to “survive”.
  • Incompetent money management.
  • A lost Internet connection.

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