Venturing Into Day Trading? Here are 10 Crucial Strategies to Abide by

Venturing Into Day Trading? Here are 10 Crucial Strategies to Abide by
Cover Image Source: Pexels | Photo by Burak The Weekender

Pexels | Photo by Anna Nekrashevich
Pexels | Photo by Anna Nekrashevich

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Day trading is seen as a way to use insights for earning lucrative returns in the market, but starting this journey requires critical thinking abilities, as traders aim to capitalize on small price movements within a single day. While the profits on offer are enticing, navigating this field of finance demands a strategic approach, especially for beginners. To make sure you make the most of day trading, here are essential strategies to understand the optimal entry and exit points, and to learn more about risk management. 

Pexels | Photo by Pixabay
Pexels | Photo by Pixabay

 

Beyond understanding procedural complexities, day traders must stay abreast of current stock market dynamics. This involves staying updated on the Federal Reserve System's interest rate plans, leading indicators, and broader economic and financial news. Start by creating a wish list of targeted stocks. Staying informed about chosen companies, and regularly going through reputable business information sources can be of great help.

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Pexels | Photo by Nataliya Vaitkevich
Pexels | Photo by Nataliya Vaitkevich

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Establishing a solid foundation for day trading involves some level of financial planning. Begin by assessing the capital you're willing to risk on each trade, a principle adhered to by many successful day traders who typically limit risks to 1% to 2% of their total accounts. For instance, if you possess a $40,000 trading account and opt to risk 0.5% per trade, your maximum loss is capped at $200.

Pexels | Photo by Pixabay
Pexels | Photo by Pixabay

 

Day trading is not suitable for those with limited time to spare. Success hinges on a trader's ability to vigilantly monitor markets, identifying opportunities that can materialize at any moment. Swift decision-making is crucial, which is why it is important to stay alert and responsive throughout trading hours. Remember, day trading involves substantial risk, and success requires discipline, strategy, and continuous learning.

Pexels | Photo by ANTONI SHKRABA production
Pexels | Photo by ANTONI SHKRABA production

 

Narrow down your focus to one or two stocks per session, simplifying the tracking of opportunities. A recent development in trading, the rise of fractional shares, further facilitates this strategy. With this innovation, even high-priced stocks like Amazon, trading at $3,400, become accessible. Brokers now enable the purchase of fractional shares, allowing investors to commit as little as $25, less than 1% of a full Amazon share. This minimizes barriers, making day trading more inclusive for beginners.

Pexels | Photo by Anete Lusina
Pexels | Photo by Anete Lusina

 

While low-priced stocks may tempt you, exercising caution around penny stocks is important. These securities, often trading below $5 a share, carry inherent risks. Penny stocks are known for their illiquidity, posing challenges in buying and selling. Moreover, many of these stocks face delisting from major exchanges, relegating them to over-the-counter (OTC) markets. Unless you have researched thoroughly, it's wise to steer clear of penny stocks.

Pexels | Photo by Pixabay
Pexels | Photo by Pixabay

 

In the early morning, as markets open, a rise in orders contributes to heightened volatility. Because seasoned players adeptly recognize patterns, it is easier for them to make a profit. However, beginners should approach this situation with caution. Spend 15 to 20 minutes observing the market without making moves. The mid-day hours typically provide a more stable environment. As the trading day progresses towards its closure, opportunities arise anew, but for novices, it's important to remain clear-headed while venturing into these rush hours.

Pexels | Photo by Hasan Albari
Pexels | Photo by Hasan Albari

 

When it comes to managing risk in day trading, employing the right order types is crucial. The choice between market orders and limit orders defines your entry and exit strategies. Market orders execute at the best available price instantly, ideal for quick transactions. On the flip side, limit orders offer price control but no execution guarantee. This precision tool allows traders to set a specific price for execution, particularly valuable in cutting losses on reversals. However, it comes with the caveat that if the market doesn't reach the specified price, the order remains unfilled.

Pexels | Photo by Andrea Piacquadio
Pexels | Photo by Andrea Piacquadio

 

Many accomplished traders find profitability in a 50% to 60% success rate. Day traders should recognize that consistent profitability is not guaranteed, and markets can be unpredictable. While day trading offers the potential for significant gains, it also involves substantial risks. Traders need to set achievable profit targets based on their risk tolerance, trading strategy, and market conditions. Unrealistic expectations can lead to impulsive decision-making, excessive risk-taking, and emotional stress. By setting realistic profit expectations and focusing on risk management, day traders can build a more resilient and long-term approach to their trading activities.

Pexels | Photo by Anna Shvets
Pexels | Photo by Anna Shvets

 

Day traders often encounter a rollercoaster of emotions, ranging from euphoria during winning streaks to frustration and stress during losses. Developing emotional resilience involves the ability to remain calm, focused, and rational in the face of market fluctuations. It's essential to stick to a well-defined trading plan, manage risk effectively, and avoid making impulsive decisions driven by fear or greed.

Pexels | Photo by Vlada Karpovich
Pexels | Photo by Vlada Karpovich

 

Day traders create detailed trading plans that outline entry and exit points, risk management strategies, and specific criteria for trade selection. The ability to adhere to these plans amidst the fast-paced and emotionally charged environment of day trading is what truly matters. Traders often face the temptation to deviate from their established strategies. By sticking to the plans, traders can maintain a structured and systematic approach, increasing the likelihood of consistent, profitable outcomes over time. Consistency in following a well-thought-out plan is a key factor that sets accomplished day traders apart in the competitive financial markets.

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