You’ve decided you want to tackle day trading. You’ve heard the maxim that only 5% of traders make money, but you’re dead set on trying it. You’ve done your research, and are convinced that you can make a go of it.
You need to be methodical and consistent and stick ruthlessly to your trading plan. If you can do that consistently, day trading offers opportunities to make money far faster than you might imagine.
When you are starting out, how do you keep out of trouble and not blow your entire account?
Table of Contents
Stay Informed
Knowledge is power. Besides knowing day trading procedures you need to keep up with the latest financial news. Many sites will provide you with notification of key economic events. Interest rate hikes, earnings reports, leading indicator announcements and other financial news can have dramatic impacts on the market.
If you are trading shares you need to know when these reports and other news items will be released and factor it into your trading plans.
Set Aside Funds
Never invest or trade more than you can afford to lose. Make sure your finances are in order and you have savings and reserves. Then you can take any surplus and dedicate it to trading.
Open a trading account with the money you have allocated for trading. Most brokerage firms and platforms allow you to open a demo account. Start practising your trading with a demo account. You should have several months of successful demo trading under your belt before you begin to risk your hard-earned money.
Set Aside Time
Day trading requires time and attention. When you are trading you want to be focused and free of distractions.
Set aside a few hours each day, that you can dedicate to trading. Ideally, it should be in a distraction-free environment. You don’t want to be interrupted by barking dogs or screaming children if you are trying to trade.
Start Small
As a beginner focus on a small number of stocks. It is easier to find good trading set-ups if you are only looking at 1 or 2 stocks during a session.
Never risk a large percentage of your trading account on any one trade. Most experts advise only risking 1% – 2% of your total account value on any given trade.
Cut Your Losses
Know when you have made a mistake and a trade has turned against you. Do not ever let the trade go, hoping that it will turn around in your favour. This has ruined more traders than almost any other mistake.
Establish stop-loss limits on every trade. Before you enter the trade decide what risk you are willing to take. If the trade hits your stop loss, get out.
Take Profits
Set a profit target 1.5 – 2 times greater than the loss target you established. If you do this, even though you don’t win every trade, you can still become a profitable trader.
Day trading is an exciting adventure that can be a rewarding experience.
