Read This Before You Dive Into Day-Trading
Like with the idea of hitting the jackpot or striking gold, it’s easy to fall in love with the idea of
getting rich quick through the stock market. The truth is, though, that very few people make a profit day trading, and even fewer can retire from it. In fact, people are more likely to lose money through this practice than to earn anything substantial.
That said, if you are still eager to give day trading a go, there are certain rules and best practices to follow to reduce your risk of loss. If you approach your new endeavor with these considerations in mind, you may even be one of the lucky few who finds success in day trading.
Protect Your Finances and Your Livelihood
Type in “Your guide to day trading,” and you will come across countless resources that claim to know the secrets to trading success. While there may be some merit in each tip, the most
important advice you will receive is this: Proceed with caution. Learn how to manage the very real risk that comes with the practice so you don’t dig yourself into a financial hole you don’t have the means to escape. The best advice I can give you for doing so is as follows:
• Start Small: Day trading is a game of speculation, and it is very likely that you will guess
wrong in your first couple go-arounds. Until you start to understand trends and what they
mean, keep a close eye on what you spend and what you lose.
• Create a Separate Budget: Because the risk of losing money is significant, treat this new
endeavor as you would any other daily or monthly expense. Create room in your budget for
it, and don’t dip into other reserves to pay for a gamble.
• Keep Your Day Job: If you’re still working, continue to do so even after you take up trading.
Even investors who experience a streak of luck have been plundered by the stock market.
Only if you start turning consistent profits should you consider reducing your hours at work.
Know the Best Times To Day Trade
Though theories abound about the best times to trade, it’s a fact that the most successful trades happen during times of volatility and fluidity. You can find both in the stock market during the opening and closing hours. More specifically, you should try to schedule your trading activities from 9:30 a.m. to about noon EST and then again during the last half hour of the trading day, which ends at 4:00 p.m. EST.
Brush Up On Your Strategies
Investors use different tactics depending on the type of securities they trade with: Commodities, bonds, options, currencies, futures or, most popular of all, stocks. You may wish to specialize in just one tactic or to adopt several. Popular strategies to look into are as follows:
• Spread trading
• Fading
• Swing trading (also called range trading)
• Momentum (also called trend following)
Whichever strategy you decide to use, it’s important that you identify ones you feel confident
using. Adopting your own unique technique may take you a while, and you may have to alter
approaches as the market changes, but your diligence in this matter can play a vital role in your success.
Do Your Homework
As I already mentioned, there are hundreds of resources out there regarding day trading, each that shares alleged “secrets to success.” Consume as many as you can, and then more still, to decide whether day trading is really right for you. Chances are that you’ll decide it’s not, and that there are much more lucrative ways to invest your money.
