If you have taken care of your daily expenses, done with your investments and savings, and have some spare cash, day trading offers a good way to make some quick money. Much maligned as a no-win, zero-sum game, day trading is actually a very professional and technical way of earning money.
We show you how to become a day trader through 10 basic steps.
1. Take Responsibility
Most day traders get into the business without understanding what it is all about. They enter a trade “expecting” it to go in their favor, and make a huge killing in the process. More often than not this approach leads to huge loss and they end up blaming everything and everyone under the sun except themselves. You must therefore, first and foremost, take responsibility for your actions. Accept all consequences or outcomes of the trade to be the result of your conscious decisions. This the fundamental requirement of a day trader.
2. Select a trading platform and cater for costs
The selection of a reliable and fast trading platform is very vital to the day trader. Select one based on its speed and real time feed. The software should perform without glitches or crashes. It goes without saying that you should have excellent internet connection and a good reliable computer.
3. Cater for Costs
Like any other business, there are costs associated with trading. Every trade carries a brokerage cost. Select a broking house which has the least brokerage as these costs could add up to a tidy sum after a while. Also check out the maintenance or annual fees for using your trading platform.
4. Establish your trading persona
Every day trader has his unique style called his persona. Decide a style and stick to it. You will become adept at it with time. Decide whether you would like to “scalp”, that is trade based on “ticks” or take position till you achieve your target or loss.
Also you could specialize in a particular market – commodity markets, currency markets, or derivatives. You could select options or futures. It is necessary to pick a market and style to develop your individuality and discipline.
5. Study Trend Analysis
As a day trader, you should have a grounding on what analysts love – Trend Analysis. Brush up on trading terms like volatility, momentum, moving averages, Bollinger bands, breakouts, consolidation, candlesticks, Elliot analyses, and a host of other jargon. Know the market trends. Knowledge of Bullish and Bearish trends could help you make a profit. It is often quoted in trading circles, ‘The trend is your friend’.
6. Have a trading plan and strategy
Before entering a trade, work out your plan. Spell out your strategy. What are your entry and exit plans? How many trades do you plan to take up? What leverage are you planning on? How much money are you prepared to lose? Think these questions out thoroughly. Put them on paper.
7. Put strict stop losses
Always remember that markets are not interested in your strategy, plans or formulas – they have a mind of their own. A nice profitable could go the other way and put you in deep losses if you do not get out in time. A stop loss order helps you to cut your losses in time. Maintain strict stop losses in your trades. You may run with your profits but never compromise on stop loss.
8. Do not over-trade
You may be sorely tempted to enter into trades to recover your losses or to make a “sure shot” profits. In your zeal and excitement you may go into multiple trades on the spur of the moment. Avoid these unplanned trades and maintain your trading discipline by sticking to your strategy or plan. This way you avoid expensive brokerage charges and probably heavy losses.
9. Simulate trading
Before you jump into the day trading fray, it is a good practice to do paper trading, or simulated trading. There are many softwares available which allow you to take positions as per actual market movements without actual money. Try them out to get the hang of day trading to get familiar with the process and to develop discipline.
10. Maintain a trading journal
Record all your trades in a journal. You should enter your starting plan, your expectations and reasons for them, how the trade progressed and how it ended. Analyze the trades. Over a period of time it will reveal what is right or wrong with your approach. Keep fine tuning as you gain experience in day trading.
The ten basic tips on becoming a day trader will help you minimize your losses and maximize your profits. So go ahead and make a killing in the day trading arena.