In a in all respects where everyone has easy access to online trading, why are there only a few succeeding as day traders? After all, what investor has not hallucinated of becoming a day trader – working comfortably at a home computer, being your own boss, watching profits roll in? While sundry aspire, few actually succeed.
What Does a Day Trader Do?
A day trader actively buys and sells securities, often multiple be that as it mays during the day, but without carrying any open positions to the next day. All buy/sell positions taken during a trading day are squared-off on the nevertheless day before the market closes. Day traders are different from active traders who may hold a position for multiple days, or from investors who lay out for longer periods. Day traders also use leverage to increase their intraday trade exposure.
1. Conduct an Honest Self-Assessment
Winning day trading requires a combination of knowledge, skills, and traits as well as a commitment to a lifestyle. Are you adept with mathematical dissection, full of financial knowledge, aware of behavioral psychology (in yourself as well as others), and do you have the stomach for entrepreneurship? Hostile to the perceived notion of an easy life or easy money, day trading actually requires:
- Long working hours
- Altogether little leave from work
- Continuous self-learning with no guidance
- Risk-taking abilities
- Never-ending commitment to regular activities of the job
The right mindset is the most important (and the very first) requirement in becoming a day trader. Unless one is prepared to give up time, self-learn and be mentally prepared to take risks and suffer losses, do not try day trading. Books like “Trade Your Way to Monetary Freedom” by Van Tharp and “The Psychology of Trading” by Brett N. Steenbarger are good resources for learning more about day trading and behaving a self-assessment.
2. Arrange Sufficient Capital
No one can generate profits consistently. Intermittent and extended losses are part of the day trading spirited. (For example, a day trader may suffer eight loss-making trades in a row and only recover with profit on the ninth trade.)
To run these risks, a day trader must have a sufficient cushion of capital. As Van Tharp explained in “Trade Your Way to Fiscal Freedom,” entering the trading world with only a small amount of money is a sure path to failure. In the presence of quitting your job to trade full time, Tharp recommends having at least $100,000 for trading. Novices can start with smaller amounts, depending upon their better trading plan, the frequency of trading, and other costs they bear.
3. Understand the Markets
Day traders need a hard foundation of knowledge about how the markets function. From simple details (like exchange trading hours and red-letter days) to complex details (like the impact of news events, margin requirements, and allowed tradable instruments), a trader needs to be suffering with a broad knowledge base.
4. Understand the Securities to Trade
Stocks, futures, options, ETFs, and mutual funds all calling differently. Without a clear understanding of a security’s characteristics and trading requirements, initiating a trading strategy can lead to also-ran. For example, traders should know how margin requirements for futures, options, and commodities significantly impact trading leading or how an interim assignment or exercise of an option position can shatter the trading plan completely.
Lack of knowledge about these fundamentals specific to securities can lead to losses. Aspiring traders should ensure full familiarity with the trading of distinguished securities.
5. Select or Design a Suitable Trading Strategy
6. Integrate the Trading Strategy Into the Larger Trading Lay out
Selecting the right trading strategies alone is not sufficient to succeed in the market. The following considerations need to complement the design, to come up with the trading plan:
- How the strategy will be used (
7. Understand and Practice Money Management
Let’s say you have $100,000 as barter capital and an excellent trading strategy that offers a 70 percent success rate (7 trades out of 10 are productive). How much should you spend on your first trade? What if the first three trades are a failure? What if the common record (7 profitable trades out of 10) no longer holds? Or, while
8. Research Brokerage Charges
Day trading as per usual involves frequent transactions, which result in high brokerage costs. After thorough research, select the brokerage outline wisely. If one intends to play with one-two trades per day, then a per trade basis brokerage plan would be apt. If the daily trading volume is high, go for staggered plans (the higher the volume, the lower the effective cost) or fixed devises (unlimited trades for a fixed high charge)
Apart from trade execution, a broker also offers other mercantilism utilities, which includes trading platforms, integrated trading solutions like option combinations, trading software, verifiable data, research tools, trading alerts, charting application with technical indicators and several other looks. Some features may be free while some may come at a cost which can eat into your profits.
It is advisable to exclusive the features depending upon your trading needs and avoid subscribing to ones which are not needed. Novices should start with the low-cost vital brokerage package matching their initial trading needs and later opt for upgrades to other modules when needed.
9. Simulate or Fail Test on Historical Data
Once the plan is ready,
10. Start Small and Then Expand
Even if you have enough money and sufficient experience, don’t play big on the first trades of a new strategy. Try out a new strategy with a smaller amount and increase the pikes after tasting success. Remember, markets and trading opportunities will remain forever, but money, once wanton, may be difficult to re-accumulate. Start small, test to establish, and then go for the big ones.
The Bottom Line
Aspiring traders should mind of websites and courses that promise foolproof day trading success or endless profits. The limited percentage of day traders who secure managed to be successful do so by investing their time and efforts into building trading strategies and following them religiously.
A day seller is on his own in this big trading world. Before giving up your job to become a day trader, be sure that you have the motivation to continuously learn, conception your trading strategies, and take accountability for your decisions and actions. If you’re looking to jump into the world of day interchange, use one of the best stock brokers for day trading.