For people thinking about beginning day trading, you’ve probably already heard that there are a number of that people are using to successfully make a career out of day trading.
Day trading is when you’re buying and selling financial instruments within 24 hours (sometimes multiple times during that time period), and it can be extremely lucrative. However, for beginners who just jump in and get started, it can also be dangerous.
Day trading can be done from almost anywhere, and there are no real barriers to entry, meaning there’s little stopping you from learning the basics and trying your hand.
When you’re day trading, you’re aiming to make money by making the most of tiny price movements in stock or indexes. You’ll be looking at three different things when you’re choosing stocks: volatility, liquidity, and trading volume.
When we talk about stock volatility, this is the measure of the daily price range. The more volatile a stock is, the greater the profit and loss. An example would be if a stock’s issuing corporation has variances in its cash flows. For the most park, markets will anticipate many of these changes, but sometimes assets will be mispriced- particularly when there’s uncertainty in the marketplace.
Liquidity is how easily it is to obtain a security, and how the price of the security is affected when it’s traded. This allows traders to enter and exit stocks at good prices. The more liquid a stock is, the more easily it is day traded. Also, liquid stocks are usually cheaper than other stocks since they’re more highly discounted.
Volume measures how many times a particular stock is bought and sold within a given time period. You’ll be using the Trade Volume Index to decide whether or not you’ll buy into a stock.
There are many different strategies used for day trading. Scalping is when you sell straight after the trade becomes profitable. Fading is when you’re shorting stocks after they rapidly move upward. Daily pivots is when day traders profit from the volatility of a stock. Sometimes this will be done by buying at the low of the day, before selling at the high of the day.
Momentum is when you closely watch the news and keep up to date with what’s happening in the world, and with the businesses you’re interested in. Reversal is also popular, and this is a good option since it allows day traders to enter a stock close to support, while maintaining a good risk to reward ratio.
One of the most important things to do when day trading is to work on your emotional composure. Mastering your emotions is crucial, and if you’re the type to become flustered and make poor choices under pressure, this is something that you’ll need to work on with a demo account before you begin trading with real stocks (and using real money).