Day Trading for Beginners

Day trading is an approach to the market in which a trader manages open positions (Buy/Long and Sell/Short) within the constraints of an intraday methodology, with no open positions held at the daily closing bell. Day trading strategies commonly target all trading markets - stocks, futures, options, forex, commodities and crypto currencies.

The discipline of day trading is certainly questionable. Industry conservatives contend that short-term trading resembles betting more than it does investing. Defenders day trading contends that in spite of the fact that day trading for amateurs might be risky; it's plausible and possibly exceptionally worthwhile.

Before embarking on the journey from novice to a seasoned day trader, beginners should take few basic steps at the outset.

Self-Assessment

It is always a good idea ask yourself few basic questions. Financial marketplace is fast moving, hyper competitive, a period of introspection before entering can be extremely useful in overcoming challenges as they arise.

Conducting a self-assessment is an important initial step in developing into a competent day trader.

A self-assessment should include the following elements:

• A self-study of one’s Personality type such as being a risk taker or being prone to impulsive behavior that can impact performance dramatically.

• Understanding what your goals and objectives are, before active trading begins is critical to finding a sustainable trading niche in the markets.

Acquire the Necessary Tools of the Trade

Today’s financial marketplace is entirely a digital. In order to interact within it competently, you need these three necessary components:

• Hardware: A desktop or a laptop with good computing power is a necessity.

• Market connectivity: Securing a high speed internet connection is a prerequisite for accessing brokerage and exchange servers.

• Software trading platform: The trading platform is the trader’s portal to the marketplace. Analyzing streaming data and placing market orders in real-time is best facilitated via robust software.

It’s never been this easier to become involved in the financial markets. Regardless of your time zone, capital resources, or level of experience, pursuing your market-related goals is now possible.

Build a Trading Plan

Having a comprehensive trading plan is the most important for any aspiring trader. It deals with decisions related to when, what, and how to trade efficiently which ensures the eventual success of the operation as a whole.

A complete trading plan must include provisions for the following:

• Market entry/exit: Identifying opportunity on-the-spot is a critical part of any trading strategy. A rules-based approach will streamline the entire process, ensuring optimal market entry and exit.

• Position management: A structured trading plan can clearly define the location of stop losses and profit targets on a per-trade basis, adding more to the current position, break-even, and trailing stop functionality.

• Risk management: Getting the most out of the trading capital is an integral part of day trading. Knowing your exposure limits within the context of a viable risk vs. reward scenario is the key to not becoming overextended.

A comprehensive trading strategy ensures that trade-related actions are carried out in a consistent and disciplined manner. Without a sound strategy, results are not quantifiable and profit or loss often resembles wild luck. The strategy must be simple, easy to understand and implement.

Focus on Price

Criteria followed by experienced traders is very simple. They focus on a single consideration: Price. Price alone is their consideration. They trade in the direction of the price movement. It is always profitable to trade in the direction of price movement.

When you’re focused solely on price, you don’t need the markets to be logical. Identify the zones where supply and demand are likely to be out of balance, then buy or sell when price enters these zones.

Trade Only in Liquid markets

Always trade in stocks or indexes which are actively traded — at least 1,000,000 or more shares in daily volume. Below that level you run the risk of being stuck in a position simply because there are no traders on the other side.

Develop Good Trading Habits

Experienced Traders know that nothing in trading works all the time. Develop good habits like staying off trading after a certain number of trades going bad. Relax and then think over the problem. One can approach a trading mentor to help you improve your trading.

All Successful traders continually practice and refine their trading strategies through back-testing and paper-trading. They let you build, test, and re-test, whatever your trading approach may be. Successful traders make or lose money by design—not by accident.

Balancing risk rather than chasing profit

Successful traders are good managers of their money and the risks of the market. The markets punish those who aren’t. Seasoned traders establish their stop loss point as well as their target profit point before entering a trade. Good traders make sure that their risk in any trade, or group of trades, will not derail them financially or psychologically. A reasonable trading plan should include a balance of risk and reward. Have reasonable expectations for a targeted rate of return. Learn to distinguish between successful trading and luck.

Plan the trade and trade the plan

Following an established set of rules may help you survive and thrive in the market. No set of rules works every time, but they help you navigate the market. Plan each step of each trade and then execute the plan. Markets are very cruel and have no mercy. Good traders follow their rules and trade their plan.

Trade with the trend

Many traders follow a trend that is already in place and ride the wave as far as they can. Following an established trend, while carefully managing downside risk, is favored by many well-known traders. It is always easier to follow a trend. An old adage of floor traders is, “The trend is your friend.”

Conclusion

These are just a few habits embraced by seasoned traders. It is important to remember that many ‘good habits’ are simple enough to understand, but not necessarily easy to always practice. Over time, you may develop other habits that support your trading strategy. Only the disciplined trader survives and profits from the market.