Day Trading Basics: How to Start Day Trading
Have you considered trading yet? If you are interested to know about the day trading strategies, I would take the answer as YES. Before getting any deeper, let’s start with understanding the difference between day trading and long-term trading.
In long term-trading, a trader holds the security for a longer period which could be for few years or for decades. This is done taking investment as the motive. The investment is made on the companies that are promising and have a vision for future to excel.
Day trading is governed by the minute fluctuation in the price of stocks within a day. For example, let’s say a trader buys 5000 shares of a company when the stock market starts. After few minutes, if the price goes up even with the slightest difference, say 0.20 dollars, the trader may decide to sell those shares. This one trade could help him make $1000 deducting the taxes and the transaction fee.
It certainly looks fascinating, but, this small decision requires thorough market reading and well researched inferences which takes time to learn. That does not mean day trading for beginners is impossible. Everyone is an amateur at start and knowing in advance the loop holes of day trading, prepares every day trader in taking the informed decision.
If you know what it entails and are ready to invest time in learning about the strategies that anticipate how market will be moving that particular day, you are good to go.
Challenges for the Day Trading Beginners
Let’s start with the challenges. Once you know what can make your big dream turn into a nightmare, you would be able to assess things at your best and make the informed decision while trading.
Among all the reason why people choose to stay away from it, here are the major ones:
Commissions can be Tricky
Many times, we are of the impression that we have made a decent profit with our trades. However, the statements say an altogether different story. Do not be shocked to know that you have actually lost when considering the trade commission.
Simply put, for every trade of yours, either buy or sell, you pay a commission fee. For example, if you buy 500 shares of a company and sell in two transactions, you would be paying the commission fee thrice for the same stock. So, if you are earning $50 in profit with your trade, and commission fee for each transaction is $20, you would end up losing 10 at the end of the day.
Hence, it is vital to take decisions precisely. Always take into account the commission fee if you want to succeed with your day trading strategies.
Breaking own Rules can Cost the Moon
As a beginner, you must set few rules for yourself. Discipled traders go long way. The first thing that you must access is your loss limits. As a day trader, you are supposed to trade a lot on any given day. It is okay to lose few if you are ending with the profit balance. But, you need to set the loss percentage and follow it strictly.
When the prices start the downward trend, we feel waiting a little longer could change the scenario for good. It may happen that you come out a winner, but what if you lose more than your set limit. When prepared for 1%, losing even 2% can create a huge gap for your day trading success rate.
Inconsistency is Dangerous
As a day trading beginner, the first thing you must acquire is consistency. In a day trading, buying is equally as important as selling. Knowing when to give up or when to keep betting should not be for just one trade. It should be consistent. Even if you are consistent for more than 50% of trade, you have managed the huge feat.
Focusing on single Stock
If you can make it for 100% success rate, you can also be the victim of 100% failure rate. To be at the safer side, plan your fund's alignment in more than one stock. Even if you lose one, you will have other equity shares to be at the profit side.
Tools for Day Trading
Now that we have learned about few of the major challenges, it’s time to know what tools we have got to assist us in selecting the right stock.
If you are a beginner and the graphs are nothing more than black and white patterns to you, you can rely on news. Connecting with the latest news on stock market makes a lot of difference in the way you trade. Isn’t it an achievement to know about something bigger going to happen in advance?
Try being ahead with all the related information and you would know it for yourself.
Online Forums and Chat Rooms:
Online communities of day traders have opened up options for beginners to learn from them. You can connect with experienced day traders in chat rooms from across the world to learn about their strategies for success. Hashtag Investing, an online chat room for day traders helps individuals to connect and discuss their trading goals and strategies.
Follow the Experts:
Every trader has its own trading style and their success mantra. There are many traders on twitter and other social media that keep followers posted about their day trading strategies and portfolios. It is a good idea to follow one and learn the way they trade.
Madaz (madaznfootballr) on twitter has 1.27M followers and is a great advisor. You will notice him posting his profits and losses every day without fail.
Another day trader, active in Twitter is Profit Trade Room (@ProfitTradeRoom). You can expect it to tweet in real time and inform which stocks are moving up or down.
Not everyone is good at it. But, it is always an edge for day traders to know about technical analysis. Every stock has a pattern and it is rare that it goes against it. Making inferences based on these patterns can be the key to success.
Analytical software is also available for day traders. Although these are costly to own, that does not make them any less influential in considering for increasing the success rate with trading. These use Automatic Pattern Recognition, Back Testing and various other strategies to get the technical analysis to its best.
Start with Real Day Trading
Everything can be concluded in one place while you are trading for real. But, the question is: Where to trade and how to start trading?
After you are ready to taste the blood, you need to make sure the pre-requisites are all set. Here is what you would require before making your first trade.
A Laptop: Because you would be trading online, you need to have to the laptop for connecting with the stock market. It is important to get a laptop with good processor and memory. Trades happen in nanoseconds. Even a smallest lag in the processing of your trade could lead to a mammoth loss. Day traders rely on speed for best result. Missing a trade is out of equation. Hence, get the best laptop for yourself.
Internet Provider: You need to be cautious and informed while selecting the internet service provider. It’s not about a movie download that can be put to buffer the entire night for watching the next day. Time is all we have got when trading with penny stocks. A decent internet package would be enough for your task. You do not need a high end connection, but also never settle for the slowest speed package.
Trading Platform: As mentioned before, every trader is different and so are their trading styles. Akin to that, every platform is different too. It may happen that the best platform listed on the internet may fall short for your trading goals. Hence, as a beginner, you must download as many trading platforms as you can. It will also help you understand what strategy you like to trade with.
Broking Company: You can only facilitate trade with a broking company. An account that you create with these broking companies provides the access to buy and sell stocks. Although, you can look for the cheapest option available, compromising on quality would be not advisable. You will require a broker’s assistance at times.
So, choose the one that is economical as well as helpful.
I won’t say that day trading is for everyone. Because that won’t be true. However, it does not mean that it is not for you. You can decide better for yourself. So, take in account every word of advice that is available to you and know what to look for. Set your expectations and most importantly your trading goals.
As a day trading beginner, you will experience failures more than success at start, but stay focused and learn from every loss to convert it into your next big feat.