10 Day Trading Tips for Beginners
Day trading is the process of buying and selling financial instruments multiple times in the same day or even throughout the day. Taking advantage of small price fluctuations can be a profitable operation if done right. However, it can be dangerous for beginners and anyone who does not follow a well-thought-out strategy.
Not all brokers are suitable for heavy day trading. On the other hand, some of them are great for day traders. Check out our list of the best day trading brokers to see which brokers are suitable for individuals who want to day trade.
The online brokers on our list, Interactive Brokers and Webble, have professional or advanced versions of their platforms with real-time price streams, advanced charting tools, and the ability to enter and modify complex orders in quick succession.
Below, we will introduce the ten day trading strategy for beginners. Next, we'll look at when to buy and sell, basic charts and patterns, and how to limit losses.
1. Knowledge is power
In addition to understanding the workings of day trading, day traders need to be aware of the latest stock market news and events affecting stocks. This may include the Fed's interest rate plans, leading indicator announcements, and other economic, business and financial news.
So, do your homework. List the stocks you want to trade. Stay informed about featured companies, their stocks and the general market. Scan business news and bookmark trusted online news outlets.
2. Allocation of funds
Evaluate and commit to how much you are willing to risk on each trade. Many successful day traders only risk 1% to 2% of their account per trade. If you have a $40,000 trading account and are willing to risk 0.5% of your capital per trade, your maximum loss per trade is $200 (0.5% x $40,000).
Set the extra amount that you can trade and that you are willing to lose.
3. Allocate time
Day trading requires your time and attention. In fact, you will have to give up most of the day. If your free time is limited, forget it.
Day trading requires traders to follow the market and identify opportunities that may arise at any time during the trading hours. Awareness and quick action are key.
4. Start small
As a beginner, focus on at most one or two stocks during the session. Easily track and discover opportunities with just a few posts. Recently, fractional stock trading has become more and more popular. This allows you to choose the minimum amount you wish to invest.
This means that if Amazon stock was trading at $3,400, many brokers now allow you to buy a partial stake, or less than 1% of Amazon's total, for as little as $25.
5. Avoid penny stocks
You may be looking for bargains and low prices, but stay away from small-cap stocks. These stocks are often illiquid and the chances of winning big are often slim.
Many stocks trading below $5 a share have been delisted from major exchanges and are only traded over the counter (OTC). Stay away from these things unless you see a real opportunity and do your research.
6. Timing of the transaction
Many of the orders placed by investors and traders are executed as soon as the market opens in the morning, causing the prices to fluctuate. Experienced players may be able to identify opening patterns and winning timing. For beginners, it is best to read the market for the first 15-20 minutes without making any moves.
Average working hours generally fluctuate less. Then the movement towards the closing bell began to gain momentum again. Despite the opportunities that peak hours offer, for starters, it's safer to avoid them in the first place.
7. Stop losses with limit orders
Decide what type of order you will use to enter and exit trades. Do you use market orders or limit orders? Market orders are executed at the best prices available at the time, and there are no guarantees on prices. This is useful when you just want to enter or exit the market and you don't want to hold a certain price.
A limit order guarantees price but not execution.
Limit orders help you trade with greater accuracy and confidence when you specify the price at which the order will be executed. Limit orders can reduce your reverse losses. However, if the market does not reach your price, your order will not be filled and you will hold your position.
More sophisticated and experienced traders can use options strategies to hedge their positions.
8. Be realistic about income
A strategy does not need to be consistently successful in order to be profitable. Many successful businessmen Only 50% to 60% of trades are profitable. However, they earn more from the winners than from the losers. Make sure you limit your financial risk per trade to a certain percentage of your account, and clearly define your entry and exit methods.
9. Keep calm
The stock market can test your nerves sometimes. As a day trader you have to learn how to suppress greed, hope and fear. Make decisions based on logic, not emotion.
10. Stick to a plan
Successful traders have to move fast, but they don't have to think fast. Why? Because they have developed a trading strategy and are obliged to stick to it. It is important to follow your formula closely and not try to chase profits. Don't let your emotions get the better of you and give up on your strategy. Keep in mind the mantra for day traders: plan your trades, trade your plan.