Day trading is essentially the act of trading financial instruments within the same 24-hour period of acquiring them, potentially multiple times a day. This is frequently done with stocks and commodities, and taking advantage of small, daily price moves can be highly profitable for skilled traders. It is generally considered a difficult strategy, however, and if you’re planning to work with a broker, you’ll need to understand that not all of them are able to deal with the fast pace of day trading.
Fortunately, there are some trading platforms that stream real-time quotes and make it easy to quickly enter and change complex orders. Day trading, particularly as a beginner, is difficult for a few reasons. You’re competing against professional traders who have made their career around the practice. You’ll need to be able to set aside a significant amount of time in order to learn and to monitor your trades. You’ll generally be making smaller gains than other forms of trading, while still paying taxes on them. You’ll also have to train yourself to make decisions based only on logic, as day traders can’t afford to be motivated by greed or fear. If you’re still interested in day trading, then you’ll need to understand the following concepts.
Set a strict budget
You’ll need to set aside a limited amount of funds that you’re willing to risk on day trading as well as a significant amount of time to dedicate to trades. Most people who are serious about day trading, especially crypto day trading, essentially treat it as their jobs. This is because traders need to be alert and monitoring the up and down swings in order to make a notable profit. You’ll also need to keep well informed of all stocks or other institutions you’re interested in trading, as the market shifts quickly and will require immediate action on your part. It’s generally recommended to only risk up to 2 percent of your funds on any given trade, and it’s wise to only focus on a small handful of prospects in the beginning.
Slow and steady wins the race
While seasoned traders may be able to take advantage of the most volatile trade hours, it’s generally best to limit your trades to the midday hours when you’re starting out. While the potential for great profit isn’t as high during these hours, they are the safest bet. It’s also important to stick to your trading strategy once you start. Successful traders won’t always make good trades. In fact, they may only profit from slightly over half their trades. No trade strategy wins all the time—the key is to find one that is consistent.
Limit your losses
Stop-loss orders will be your best friends when it comes to limiting your losses. This is basically an order you set to close out your position on an institution if the price drops too low. For example, if you bought stocks for $10 a share, you could set a stop-loss order for $9.50 to prevent a greater loss if the price continues to go down. Conversely, you can set orders to close out your position if prices reach a desired high. This is valuable for times when you can’t monitor prices yourself, but still want a chance at profits. You’ll likely need to experiment with your orders until you find a balance that consistently meets your goals.
Once you’re comfortable with the concepts of day trading, you can start following more stocks and engaging in more trades at a time. You may even decide to graduate to more complex prospects or increase your budget over time. Just remember that different types of trading will require different strategies to succeed, so well-thought out plans and strategies ultimately work best.