Day trading is when a trader buys and sells a financial asset (stock, ETF, commodity etc) within one day. Trading within a single day allows investors to take advantage of small fluctuations in the stock price throughout the 24 hours the market is open for. Beginners to day trading should research a stock thoroughly before investing. Here are some day trading strategies for beginners to ensure better returns.
Day Trading Strategies – Top Tips
1) Research What You Are Investing In
Day traders should not only stay on top of the stocks they are investing, but also the market in general. Small economic changes will have an impact of the price of a stock on the day. When day trading, there is little room for error, so economic downturn will slash any potential gains. Make a list of stocks that you intend to trade, check their calendars to ensure they are not going to make and drastic changes anytime soon.. such as a CEO leaving.
2) Set An Investing Budget
Set aside a budget for the capital that you are ready to risk for each trade. Most experienced intraday traders will risk around 1% to 2% on each day trade. So if you have $100,000 in your trading account, then you may want to put up $2000 per trade. When you set this money aside, understand that day trading is risky business and may not bring the gains that you always hope for.
3) Start With A Small Volume
When you start day trading it is important to work your way up gradually. It is advised to stick with one or two stocks during day trading. When a trader only has one or two stocks to look at, it is easier to see when to buy and sell. This is important to add to your day trading strategies.
4) Avoid Penny Stock Day Trades
Penny stocks have a high risk factor to them already, but day trading them adds another tier of risk. These stocks are illiquid and the chance of the pink sheet that you are looking at going up is minimal.
5) Set A Schedule
Day trading is a time-consuming way to invest in stocks, it takes most of the day considering stock exchanges are open 24 hours a day. Moving on a stock requires a trader to track the market for extended periods of time. It is advised to set alarms before the stock markets open for trading.
6) Use Limit Orders To Prevent Huge Losses
When setting a limit order, the price is guaranteed. So if you want to buy when the stock hits $X, then set the limit to X. A market order is executed when the stock hits the best price available at the time, so there is no price guarantee. Limit orders allow you to set your buy-in price and sell price to avoid you losing your capital if a stock plummets.
7) Be Calm
Throughout the day, the capital you invested in a company may drop slightly. It is essential not to panic and remember that a trader does not need to win on 100% of trades. The fundamentals of day trading is too win on more positions than you lose on. Have an entry and exit strategy if a stock becomes too risky once you have invested. By selling off too early into the day may mean that the profit margin on a stock may be lower than if you waited a few more hours. This is important when checking out day trading strategies.
8) Don’t Be Unrealistic With Upside
Most experienced traders will only win on around 60% of their total trades. Being profitable 100 percent of the time is not always achievable. Know the price at what you are ready to sell at and stick to it. By waiting it out in hopes of even more gains may result in you losing the profits due to unforeseen events throughout the day.
9) Stick To Your Day Trading Strategies
Successful investors have to move on a position fast, but they do not think with the same urgency. This is because most experienced traders will have developed their day trading strategies that do not require much thought. Follow the plan carefully and try not to chase profits.
10) Time your Trades
Many traders will set buy positions for the next trading day, so once the market opens you automatically invest in a stock. The middle of the day is the less volatile trading time, towards the closing bell thing will pick up. More trading opportunities arise as soon as the market opens and once it closes. Beginners may choose to avoid these hours to lower risk.
When To Sell?
Exiting a position can be done in many ways.
Fading – Fading is when a trader shorts a stock after is movies upwards. A stock must be overbought for this to work and early investors must be selling. Fading has a high risk factor, but can bear huge upside.
Scalping – Scalping is one of the most common day trading strategies for exiting a successful position. It is when a trader sells the stock immediately after it becomes profitable. The price target is whatever number at which you have made money.
Momentum – Momentum strategy is when a trader will look at the news relating to a company and trade based on headlines. A momentum trader will buy a stock based on breaking news and sell when it begins to drop.
In summary, day trading is a hard game to become an expert at. It requires great patience, skill and timing. Most people fail at day trading because they lack one of those qualities. By following one of the day trading strategies, there is huge gains to be made on intraday trading.
These are the editor’s top stock picks for short-term gains.