Day trading involves the placement of trades that are entered and exited in a single day, hence the name. The position can either be long, or buying, or short, or selling.
A day trader’s main goal is take advantage of short-term volatility during the trading, avoiding the overnight risk caused by various events such as a negative earnings report that might be released after the markets close.
In this article, we’ll talk about the best tips that you can use if you want to try day trading or if you want to up your day trading game.
Tip 1: Find situations where supply and demand are largely imbalanced and use these as entry points.
The financial markets are similar to many ordinary things you see every day. If the supply is almost gone and there are still buyers waiting to score it, the price is sure to get higher soon. If there is too much supply and there are few willing buyers, the prices will go down.
You should learn to spot these points using a price chart and by studying historical examples.
Tip 2: Set a day trading target price before starting.
If you’re buying in a long position, it’s very advisable to decide how much profit is already acceptable ahead of time. You should also set up a stop loss level just in case the trade goes against you.
And trust us, your trade will often go against go, no matter how illogical or improbable that might be.
Also, learn to stick to and trust your decisions. This helps you put a cap of your potential loss and also keeps you from being too excited or greedy if the price rises to an untenable level.
Tip 3: Always aim for at least 3:1 risk/reward ratio when setting day trading targets.
Understanding the proper risk/reward ratio is one of the most important lessons when it comes to stock trading. Learning about it helps you lose small amounts and win big.
As you gain more experience and become a better-skilled trader, a risk/reward ratio as high as 5:1 may be easily achievable.
Tip 4: Be levelheaded and patient.
Weird as it may sound, the most successful day traders are those who don’t trade every day. Such traders may always be monitoring the market, sitting in front of their computers, but they don’t trade unless they find a very good opportunity that meets their standards.
This is what’s difficult for jittery traders who want to just do something, impatient for market action.
Tip5: Improve your self-discipline.
As new kid on the block, you need to have a trading plan and have the discipline to stick to it. Discipline takes time to build but it pays well once you get to learn the ropes.
Tip 6: Only risk the money that you can afford to lose.
Before you start day trading, make sure that the money you are using is money that you can afford to lose. Make sure it’s not dedicated for other important expenses such as loans, bills, and budgets.