You, like many, have probably heard the miraculous stories about the traders who struck it rich from trading and decided that you would like to become a day trader. And though these stories are real, you should understand that it is high unlikely that the average day trader stands to make millions in the market because of the substantial amount of money, time and energy that is required to reap such results, however, there is money to be made in the market, provided you implement the “right” plan. That being said, these tips on day trading, will have you well on your way to a successful new career as a day trader.
1. Can You Afford to Lose?
You have to be able to trade without anxiety. This doesn’t mean you abandon all sense, but if you need money right now, you probably shouldn’t be trading.
2. Do You Have Access to a Stable, High-Speed Internet Connection?
Having a really fast cable modem or DSL lines will allow you to make the fastest trades possible. Before you begin, test your connection for stability and speed. Likewise, be sure your broker will answer the phone if your internet connection is down.
3. Have an Enter, Exit and Escape Price
Before you begin, you should have a clear idea of a price you would like to enter the market at, an exit price and an escape price in case the stock price comes tumbling down. This will give you a clear cut plan as to when to get in, when to get out and what to do if the trade doesn’t quite work out as planned.
4. Practice Day Trading
Practice trading can be beneficial for novice traders, as it can provide a wonderful educational experience. Once you open a practice account, be sure to trade with a sufficient amount of funds. For example, don’t practice trading with $20,000 when all you have in your account is $1,000.
5. Use Limit Orders
A limit order allows you to set the maximum price you’re willing to sell or the maximum price you are willing to pay, which is why it is recommended.
6. Avoid Acting on Tips From Outside Sources
Most pros avoid purchasing stock from uniformed acquaintances, because they know it almost always leads to bad trades. Besides, knowing what stock to buy is only half the battle. You must also know when to sell, which is based on your individual trading goals.
7. Cut Your Losses
The key to surviving as a day trader is you have to be able to manage your losses. In trading, you’re going to be wrong a lot. As soon as you know you’re wrong, you must be willing to exit the trade, at once, in order to avoid a further loss. A small loss is generally the best loss. Also, you want to let your winners ride, but not for too long. Remember, stick to the rule of thumb: enter, exit and escape.