Jumping headfirst in the day trading can be a risky move. You’re getting right into the shark tank with investors who are backed up by a lot of experience and connections in the industry. Day trading means to buy and sell stocks during one business day, or sometimes even several times per day. This might seem like an easy task, with small risk since there aren’t a lot of profits to be made. Still, some basic skills are necessary to make the right judgment and act at just the right time. Strategies that savvy investors developed over time can be helpful, but if you’re a newbie you are going to be left in the dark. Here are some fundamental tactics to stick to before jumping in on the bandwagon.
1. Information
Thinking that some elemental knowledge is going to make you a millionaire on the stock exchange is just plain foolish. Especially when it comes to day trading when you need to be in the loop with the latest news about the stock prices and collect the data from every reputable source every second. Day trading is a specific kind of investing where changes happen in seconds and there is no time to think, but only react. To have proper and profitable reactions, you need to have that gut feeling backed with a ton of experience to succeed.
So, before even making a move, ensure that you have a detailed daily plan consisting of which stocks you’re going to monitor, or buy, how are their ups and downs in the recent period, and to predict to some extent how the movement is going to happen. Knowledge and reliable information are the keys to make money on the stock market in general, let alone in day trading where the climate changes every moment.
2. Set a limit of money, but not the time
Before investing a penny in any stocks, you need to set a limit in funds that you can realistically spend. Once the stock exchange opens the frenzy begins and it’s very easy to get carried away with buying. The atmosphere on the floor is usually very chaotic so losing sight of your goals can happen quickly and even without you realizing it. The usual percentage of risk is between 1-2% of the total funds. In case an unexpected opportunity arises, you can set aside the money for that without going overboard.
When it comes to time, brace yourself for a long day. Having just a few hours per day to take a glance at the stock market and make your move is probably going to cause you a lot of loss. Day trading requires a lot of time to track the fluctuations, prices, and availability of the stocks. Patience is a virtue that every stockbroker has to have in abundance. Sudden and impulsive movements are often times doomed to a considerable loss. Follow the changes and act accordingly. Even though it’s a day trading, remember that tomorrow is another day, you don’t need to invest anything today if you don’t see fit.
3. Be modest without being cheap
Starting small is the most important advice any stockbroker will give to beginners. People who are new to the stock exchange often come with big dreams of becoming millionaires throwing money on the floor of the exchange. That’s Hollywood. In real life, be wise and buy cheaper stocks or, if you wish to mingle with big players, try buying only portions of the major ones. Every broker is going to be more than willing to sell you one-quarter of the $1000 stock so that you don’t have to take a dive at the beginning.
However, steer away from the penny stocks. Although they might be an attractive investment for the newbies, they are usually worthless and are kept on the exchange for a very short period of time. Very quickly they go under, dragging your profits with them. Unless you are really sure that there is some future in the penny stocks, and you did your homework thoroughly, stay away from them. There is a reason that they are super-cheap – it’s because they are worthless. If this seems complicated, check out how to start swing trading.
4. Have realistic expectations
The average broker makes a profit only on about half of the stocks he or she invested in. So, prepare for the inevitable losses. However, experienced traders always make their winnings bigger than their losses. It’s a normal part of the trading. Losses happen to the best ones, so in the beginning, take it more as a lesson in investing than a true loss. Caution is always advised, but there is no guarantee. Don’t get nervous, anxious, or depressed when this happens, since it’s just the normal day at work for most investors.
5. Be cool
The stock market is an everchanging environment that can, from time to time, stretch your nerves to the breaking point. Staying cool when winning or losing is a crucial part of the trading business. Quick moves, whether buying or selling, can and probably will cost you a lot in the long run. So, think through every single step you take and resist the hype of plunging into a risky pool. Calmness is something that will take a lot of practice, so try to keep yourself away from making any emotional decisions.
It’s always best to just stick to your plan, especially until you gain some trading skills. Discipline and a cool head on the shoulders are the key ingredients to have a successful day at the stock exchange. Always remember your pre-set limits when it comes to funds, and don’t buy any stocks that you’re not familiar with. Choose one, maybe two stocks to follow each day and do your due diligence previously. If you don’t know anything about the stock, but you think that it might be some major profits hiding in the back – don’t do it. There are a lot of tricks in the market that you’re not aware of, so stay with the plan and trade with as much certainty as possible.
