What are some tips for beginners at day trading?

What are some tips for beginners at day trading?

Day trading is also known as intraday trading and short-term trading, commits to buying and selling shares of a stock within a single trading day. So, between the time of the market open and close, you execute and square off your position.

The goal of day trading is similar to just about any other method of trading or investing: to earn a profit. But the way that you approach that goal is a little different of day trading.

For example, if you buy shares of a blue-chip company, you’re binding to a long-term relationship. This is a company you believe in or at least you believe their share price will increase. While in day trading, you don’t buy a company’s shares because you believe this company has what it takes. Also, you don’t plan to cling on for long.

You choose stocks based on price volatility. The stock could be going up for a variety of reasons like big news, a new contract, or a new product. You hope to take advantage of short-term price fluctuations. On the other hand, you might short sell based on negative news that could cause fluctuations.

Here is an overview of some helpful strategic tips:

Determine Entry and Exit Prices

• Try to analyze the best entry point by understanding the supply and demand which are drastically out of balance and against the market.
• These are often determined by looking at a stock’s historical data. Once you plan your entry and exit, stick to it.

Employ Stop Loss for Lower Impact

• For those who don't know, Stop loss is a trigger that is used to automatically sell the shares if the price falls below a specified limit.
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• This is beneficial in limiting the potential loss for investors due to the fall in the stock prices. For investors who have used short-selling, stop loss reduces loss in case the price rises beyond their expectations.
Book Your Profits When Target is Reached
• It is very normal for traders to feel fear or greed while doing Day Trading.
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• It is important for traders to not only cut their losses but also to book their profits once the target price is reached. In case the individual thinks the stock has a more possibility of rising in price, the stop loss trigger must be readjusted to meet this expectation.
Manage Risk-Reward Ratio
• It is important that you start trading only after developing a risk management strategy. This will ensure you only lose what you can afford.
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• The most important lesson in day trading is to understand the risk-reward ratio. Every beginner trader should maintain the risk-reward ratio of 1:3.
Stable Invested Capital Per Trade
• It is important to never risk too much capital on one trade. Position size should be set as a percentage of the total day trading budget which might be anywhere from 2% to 10%, depending on the budget.
• If we exceed the decided percentage of position size, we might miss out on an even better opportunity in the market due to all available funds being tied up in one or two trades. Plus, the risk of loss is conceivably greater as the size of the position increases.
Be Patient and Disciplined
• Day trading requires patience. It is not necessary to trade everyday or all-day. If you don't see any opportunities that meet your criteria, you shouldn't be executing any trades that day even if you're sitting in front of your computer, and totally into the market. That is way better than going against your understanding, out of an impatient desire to do something.
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• Discipline is essential to achieve consistent trading results. Beginners need to set a trading plan and stick to it.
Never Stop Learning
• You should always study to trade smarter. You need to stay up-to-date with the news, read appropriate trading books, and stay tuned into developing circles. Always remember, markets evolve and you need to evolve right along with them.
Lead With Facts
• Make sure your strategy is based on, supported, and backtested with facts. Humans are so emotion-driven. So, one should always beware of his/her mindset.
• Your decision-making processes should always be reliable on facts and figures.
Manage a Trade Journal
• You should keep a record of all your previous trades from entry and exit to price and volume. You can use this information to identify problems and improve your strategy.
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• This will allow you to make intelligent decisions in the future.
Learn From Experience
• Traders shouldn’t second-guess themselves, once the trading analysis is done and the trade is placed, even if it goes against them.
• Every day trader experiences loss, so it’s ok when the particular trade doesn’t pan out, especially for a beginning day trader. Traders should evaluate the trade to confirm that they followed their own established day trading rules and that they didn’t get in or out at the wrong time.

Wish you luck with your trading journey!