Capitalizing on small market moves throughout the day can be profitable – but only if done correctly. But like any type of trading, it requires well-calculated moves and strategies to avoid losing your hard-earned money. New traders who haven’t mastered this art would do well with some effective strategies. Are you looking to become a day trader? Read on for how to execute trades successfully – for beginners.
Acquire Knowledge
Knowing basic trading procedures is not enough in day trading. If you are to become a successful day trader, then you need to stay on top of market trends, market news, current market sentiment, interest and inflation rates, currency values, and the overall economic performance. Learning how to use indicators, especially the MACD indicator is also crucial as a day trader.
So, get to doing research. Compile a list of currencies you’d like trade and find out information about the companies and markets involved. Pay attention to business news and read finance and investment news on reputable websites. You can even take it an extra mile and download finance news apps that provide real-time, up-to-date financial news, and price changes. This way, you know which moves to make, and you never miss a viable trade opportunity.
Prepare Some Funds for Any Eventuality
In some ways, day trading is much like betting. You can win or lose. As such, you should lay aside some funds that you’re willing to risk on each trade. Even the most experienced traders lose at least 1 or 2 percent on each trade. For instance, if your trading account has $1000 and are prepared to risk 1 percent of the amount on each trade, then the biggest loss you can make on each trade is $10 (0.01 × 1000). Always set aside some portion of your trading account that you are willing to lose.
Allocate Time
Day trading is called as such because trading is done during the day. That means you will have to sacrifice a huge chunk of your day hours. If other commitments absorb your time, it’s better to shelf day trades for now.
That’s because the process needs you to keep a constant eye on price shifts and trends so that you identify new opportunities when they emerge – which often happens during day hours. Remember, markets move fast, and your agility is critical.
Steer Clear of Penny Trades
Penny trades valued at very low prices per share. Even if you are eyeing deals with low prices, you may want to avoid this type of trades. That’s because they have very few people trading them, and they have a low probability of being converted into cash.
Also, most penny trades are delisted from stock and other financial markets and only available for off-exchange trading. Keep in mind off-exchange trading lacks the benefit of transparency that is associated with on-exchange trading.
Timing is Key
Trade orders placed by investors kick off immediately after markets open in the morning. This contributes to price fluctuations. An experienced trader can identify patterns and make the right moves to score a positive turn. But if you’re a novice trader, it’s better to analyze the market for about 20 minutes before placing a trade.
The hours surrounding midday both morning and afternoon are usually less prone to volatility, then the market starts experiencing fluctuations close to the end of the day. When prices are experiencing a lot of movement, there is a bigger window to make a profit. But for beginners, it’s better to understand the landscape before diving in headfirst.
Reduce Risk by Trading on Limit Orders
Limit orders are types of orders an investor makes to trade an asset at a lower value than the specified price. It’s the opposite of a market order, which is an order by an investor to trade an asset at the most profitable price under the prevailing conditions.
Though a market price is faster and more reliable to trade with, limit orders allow you to buy or sell with more accuracy because you set the parameters for both buying and selling. Also, limit orders protect you from loss and help you make the most of the gains.
Day trades can be very lucrative but also dangerous. Entering the market without a complete understanding of how to turn profits or mitigate losses can be very costly, both financially and psychologically. Follow these simple guides, ease your way into the market, and you’ll be a pro in no time.
