Americans are looking for ways to take control of their finances and unshackle themselves from the office. Day trading is a great tool for generating money fast. As with any form of investment, day trading involves risk. A day trader needs to have a good working knowledge of the stock market and solid discipline.
Selecting and exercising a consistent strategy is essential to success. The following are five day trading strategies that can be utilized to help you understand and exploit the markets.
Establish a Budget
The first thing to be done before making a trade is to establish a budget. Determine a budget for your overall trading account and then determine how much money you can afford to lose in a given day. For successful day traders this amount will generally be only one to two percent of their overall trading account. Once you hit this daily loss total, quit, recuperate, and come back refreshed and clear-headed tomorrow.
Opening a demo account gives you the opportunity to practice day trading without exposing any real money. When you’ve got a stock you’re interested in, trade with it in a demo account. Watch how it acts, what it reacts too, and get comfortable with its daily movements. Once you feel like you are consistently able to get in as a stock price is rising and out before it drops, you can give it a try with actual money on the line.
When you’re starting out it is wise to trade only one or two stocks at a time. This way you can really focus on how the instruments are performing without losing track or becoming overwhelmed. As with any critical skill, day trading requires practice, practice, and more practice. It typically takes years for a day trader to hone their strategies to the point where they are consistently making profits.
Limits Let You Trade with Precision
A limit order allows you to set the price at which you are willing to buy or sell a stock. This is a good way to avoid serious losses. A limit order insures that you will not pay more than you are willing for a stock, but the order will not be fulfilled unless the security’s price falls within the criteria you’ve established.
Stocks to Avoid and Hitching a Ride on a Rising Star
As you begin your career in day trading avoid Penny Stocks. These low-priced securities generally don’t provide enough liquidity to make them worthwhile to the beginning day trader.
Your goal as a day trader is to identify stocks that are on the move. You’re looking for a breakout stock – a stock that is suddenly trading hot and moving up. There are a number of factors to look for when determining whether or not a given stock is a good choice for the day trader. Higher than expected trade volume is an indication of a stock price change. Additionally, you want to see that stocks around your potential break-out stock are not meeting resistance, or stagnating. Public announcements regarding a stock can send ripples through the stock market and often present a good opportunity for the day trader to capitalize.
Through discipline and research, day trading can open pathways to new income opportunities.