Day trading is an exciting career prospect, and it’s probably one of the best opportunities to make vast sums of money.
However, there’s a reason the potential rewards are so high. The risks are too, and it might shock you that seven out of ten day traders lose their initial investment.
So if you are considering day trading, you’re probably wondering how you can be part of that magical 30% group that sees financial success. To help you, we’ve put together these tips and day trading strategies that are perfect for beginners.
You need to stay informed if you want to succeed in day trading. Join online communities to get advice, but avoid using them for investing tips unless you know your contact well (and trust their advice).
Read industry and economic news and articles that will help you get a feel for any future economic uncertainty.
No one can predict what will happen, but reputable economists will often write about what things look like on the horizon. You can use that to your advantage when making investment decisions.
Don’t forget to keep up to date with your financial education too. There are so many books on places like Amazon that you might not know where to start, but you can save time by picking audiobooks or trying a service like Blinkist.
Test the Waters
If you are new to investing, remember that, like anything in life, it takes practice. With that in mind, start small and test the water with a few low-risk transactions.
That will help settle your nerves and help you understand the ropes without risking too much money from the outset.
Take some time at the end of each working day to review what went well and what went poorly. Use that review as a guide for improving your strategy in the future.
Avoid Penny Stock Tips
You might have read stories in guides on how to day trade about investors who made vast sums of money from penny stocks.
But these small company stocks tend to be high risk and could cost you money from a bad investment. If you are new to day trading, it’s best to avoid these and focus on safer stocks.
Manage Your Capital Exposure
Decide on a percentage of the capital you will expose during a trade. Setting a fixed limit on what you will trade will stop you from making rash decisions or exposing yourself to too much risk.
It’s easy to dip into more of your capital if you spot a profitable trade. Still, that temptation is often where beginner investors go wrong.
Establishing a strict rule with your capital from the outset will keep your decisions under control. It allows you to see long-term financial success instead of making risky decisions for a one-off windfall.
Keep Your Emotions in Check
Emotions are often the enemy of good decision-making in financial investment. There are two ways to stay unemotional when day trading.
First, as mentioned earlier, limit the money you risk on a single trade. That will stop you from entering the dreaded “panic” zone if a transaction doesn’t pay off.
Secondly, prepare your decisions upfront. Have a set of rules you follow when making trades to avoid basing your decisions on instinct or emotion.
Choose Safer Stocks to Start
Safer stocks won’t guarantee a profit, but they will help you learn how to become a more successful day trader.
They will allow you to prove you can make good trades on a relatively safe stock. Once you’ve achieved that, you’ll feel more confident trying your hand at riskier or more unusual stocks. To get more in-depth analysis and stock recommendations, check our Motley Fool vs Zacks to improve your investment portfolio.
Use limit orders for your trades to help make your early trading career easier. Limit orders will allow you to make a trade when that stock reaches your pre-determined price.
Focus on One Sector
Specializing in one sector for your trading has its advantages and disadvantages. However, it’s still a good idea for a beginner trader.
On the plus side, you’ll find it easier to learn about the industry and read relevant sector news daily. But there is a downside. Instead of diversifying, you’ll expose your trading to one sector and all the fluctuations within that specific industry.
With that in mind, establish a second specialism as soon as you have mastered the first to help you have more diversification in your trades.
You could look at other safer ways to diversify your investments, such as putting some of your money in gold bars.
Commit Focused Time
To succeed with trading, you’ll need to commit a certain number of hours daily to stay consistent with your research and trades.
It’s not something you can do one day and ignore for the rest of the week if you expect to make money trading.
If you have a full-time job and can’t commit an entire working day, select the hours you can commit to instead. Make it a habit to sit in your office simultaneously every day to give trading your full attention.
Arbitrage is a technique for managing and reducing your risk from a financial investment.
With traditional arbitrage strategies, you invest in one stock or financial instrument and simultaneously invest in another that tracks the opposite on a financial graph.
That way, when one goes up, the other goes down, and you don’t make a considerable loss. It also means you won’t make the most sizeable gains. Still, it’s a sensible option and almost acts as an insurance policy.
If you are new, having some form of insurance against your trades is undoubtedly appealing.
Top Day Trading Strategies
You can make a success of financial investments. But you need to know the right day trading strategies to avoid the significant risks of this exciting but challenging career.
You can also find more day trading tips by exploring some other articles in our finance section. Check it out now!