Day trading tips for beginners

Day trading consists of buying and selling a financial instrument on the same day or even several times during a day. You must know how to take advantage of small price movements to create a lucrative momentum. But it can be a dangerous game for beginners or those who don't have a well-thought-out strategy. Day trading is only profitable when traders take it seriously. It's not just a game. You can't day trade like you play roulette. Before starting, it is necessary to research and know the financial markets well. Also, day trading is a job, not a hobby. So treat it as such, be diligent, focused, objective, and detach from your emotions. In this article, we help you decipher day trading.

What makes day trading difficult?

Day trading takes a lot of practice and skill, and several factors can make the process difficult. First, know that you are facing professionals whose career revolves around trading. These people have access to the best technologies and connections in the industry. So even if they fail, they are conditioned to succeed. They are well-honed war machines. And if you go in headlong without thinking, that means more profit for them.

Don't forget that you will also have to pay taxes on any winnings you make. So, in the end, what you earn is not the net worth of what will remain in your portfolio. So be aware that some losses may wipe out all of your winnings.

Also, as a beginner day trader, you may be subject to emotional and psychological fluctuations. These can cause you to make rash decisions and lose money. Professional traders are generally able to control their emotions. This allows them to protect the money and stick to their trading strategies. But as a beginner day trader, you invest your capital, so you can more easily get carried away by your emotions. In reality, day trading requires great stability and great emotional control. Fortunately, you can learn to manage this, but it takes time and letting go. Not easy when playing with your own money.

Decide what and when to buy

Day traders attempt to make money by exploiting minute price movements in individual assets (stocks, currencies, futures, and options). They usually do this by raising large amounts of capital to have significant gains. When deciding what to focus on, a seasoned day trader looks for three things:

• Liquidity: it allows you to enter and exit a share at a good price. For example, tight spreads, or the difference between the bid and ask price of a stock, and low slippage, or the difference between the expected price of a trade and the actual price.

• Volatility: it is simply a measure of the expected daily price range, ie, the range in which a day trader operates. More volatility means more profit or loss.

• Trading Volume: This is a measure of the number of times security is bought and sold over some time, more commonly referred to as the average daily trading volume. High volume indicates high interest in a stock. An increase in the volume of a stock is often the harbinger of a price fluctuation, up or down.

Identify entry points

Once you know what type of securities or other assets you are looking for, you must learn to identify entry points, that is, at what precise moment you will invest. Follow news services in real-time. Indeed, the news can move stocks. It is, therefore important to subscribe to services that notify you when news that could move the financial markets is published. This will allow you to define some of your entry points.

Decide when to sell

There are several ways to exit a winning position, including trailing stops and profit targets. Profit targets are the most common exit method, taking profit at a pre-determined level. Some common price target strategies are:

Scalping: This is one of the most popular strategies. This involves selling almost immediately when a trade becomes profitable. The objective translates to “you made money on this trade.”

Fading: Involves selling stocks after rapid upward moves. This is based on the assumption that either they are overvalued, first-time buyers are ready to start taking profits, or existing buyers are scared off for x or y reasons. Although risky, this strategy can be extremely rewarding.

Daily pivots: This strategy takes advantage of a security's daily volatility. This is done by attempting to buy at the day's lowest price and sell at the highest price of the day.

Momentum: This strategy typically involves trading based on news or finding strong trend moves backed by high volume. The momentum trader will buy on the news and follow a trend until it shows signs of reversing.

Just like your entry point, define exactly how you will exit your trades before entering them. Exit criteria should be specific enough to be replicable and testable.

How to limit losses in day trading?

To limit losses in day trading, you need to set stop losses. Define exactly how you will control the risk on your trades. The strategy consists of defining two stop losses:

An actual stop-loss placed at a certain price level that suits your risk tolerance. This is the maximum amount you allow yourself to lose on each trade.

A mental stop-loss set at the point where your entry criteria are more than threatened. You will immediately exit your position if the trade takes an unexpected turn.

Whatever you decide, the exit criteria should be specific enough to be testable and repeatable. Also, it is important to set a maximum loss per day that you can afford, both financially and mentally. Also, always stick to your trading plan and perimeters.

So, once you have defined how you enter trades and where you place a stop loss, you can assess whether the potential strategy is within your risk limit. If the strategy exposes you to too much risk, you need to modify the strategy to reduce the risk. And if the strategy is within your risk limit, the test begins.

Basic strategies for day trading

Once you have mastered certain techniques, developed your trading style, and determined your end goals, there are a series of strategies you can use to help you in your quest for profits. Here are some popular techniques you can use.

• Follow the trend: Anyone who follows the trend will buy when prices go up or short-sell when they go down. This is done assuming that prices that have risen or fallen steadily will continue to do so.

• Investing against the grain: This strategy assumes that the rise in prices will reverse and decline. You buy when the trend is down or short-sell when it is up, hoping the trend will change.

• Use scalping: this is a style where small price differences are exploited. This technique normally involves entering and exiting a position quickly, within minutes or even seconds.

• News Trading: Investors using this strategy will buy when good news is announced or short sell on bad news. This can lead to greater volatility, leading to higher profits or losses.

To conclude this article on day trading

Day trading is difficult to master. It takes time, skill, and discipline. Many who try it fail, but the techniques and guidelines outlined above can help you create a profitable strategy. With enough practice and consistent performance evaluation, you can dramatically improve your chances of beating the odds.