The concept of day trading in theory is relatively simple. In actuality, day trading is extremely difficult and requires careful research, planning, and foresight. If you are thinking of day trading but have little idea on how to get started, here are a few pointers that can get you on your way.
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Learning to day trade. One of the best ways to get started in day trading is to find a resource that already actively trades. Learning the tricks of the trade are most likely to occur on the job and not in a book.
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Know the definition. Day trading is as literal as it sounds. At the end of the day, you hold no position in any investment.
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Understand the stock markets. If you have very little knowledge in the stock market or investing overall, that is the first place to start. Day trading right off the bat would be considered equivalent to racing on a track without a license.
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Have adequate risk capital. Only invest what you can afford to lose. This is a very valuable piece of advice in many aspects of investing but is especially true when it comes to day trading.
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Have the right equipment. Once you are well versed in the world of day trading, you need to make sure you have the right equipment. Day trading is by no means cheap. Not only is a high speed Internet connection necessary but a variety of software and analysis tools are needed in order to be successful.
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Create a trading plan and don’t waver from it. In any successful business venture, a thoroughly thought out plan is crucial. If you’ve done your due diligence and have successfully formulated a plan, do not waver from it, even if it doesn’t immediately pay off.
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Keep track of the market. In order to be successful in day trading, you have to be on top of the market and any changes that come with it. Much of the knowledge that comes with the market is from experience and time and cannot be simply taught. This is why a solid foundation in the stock market and investing is crucial before starting to day trade.
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Manage your Mood, before your Money. Unlike most jobs, you have no choice but to work even when you are sick or upset. In the world of day trading, not only do you make your own schedule, but it is advised to limit trading except for when you are in optimum condition. Day trading requires extreme focus and the lack of it can cost you thousands.
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Keep detailed records. In any successful business, the need for accurate records is crucial. In day trading, this is no different. You need to know your performance both in the short and long term. This is how you are able to make decisions and improvements in the future.1
As is evident, day trading is no simple task. As is the case with most things, if it were an easy way to make money, everyone would be doing it. The fact of the matter is that it requires extensive resources as well as a deep understanding of the market in order to be successful.
#8 is key, and often overlooked. Sharpness is everything, and you’re absolutely right that a bad day can cost you dearly.
Showing emotion in trading is one of the most dangerous things someone can do. Developing pride, anger, excitement and even joy can counteractive a solid trading strategy. One has to be very careful to follow their strategy despite what might make them change course for emotions sake only.
Most people think they can handle day trading but, most don’t have the capital to even get started. The very first thing is to make sure you have an emergency fund, a solid job and investments elsewhere. The money that is used for trading should be considered money that one can afford to lose if that happens.
Finally, there are many brokers that offer practice accounts. Although it does not replicate the sell side very well or the emotional impact of losing, it does give the user an idea of the process and understand the bells and whistles of the brokerage account and trading platform. Some can be incredibly complex and daunting.
Yes, staying calm is definitely easier said than done. That is why developing a plan and sticking to it is key.