Posted on February 2, 2011 by StockTrading.net | Comments Off
There are many strategies and techniques for. One method is called “day trading” and it’s a strategy recommended for people who have experience with the stock market and the discipline to research and study the various stocks. Day Trading is perhaps the most exciting type of stock trading. Those that enter day trading however need to be careful as the adrenaline and thrill of being in day trading can often over power sensibility. Beginner day traders have a lot to learn if they want to be successful and should never let their feelings and emotions overtake their ability to make a good trade. Here are some important things you should keep in mind if you are just starting out in the day trading market.
Never Enter A Trade Without Knowledge
In order to be successful at any type of stock trading you need to become educated and with day trading this is especially important. You never want to enter day trading without being prepared and having, at the very least, a basic knowledge of how the market works. Before entering into the market you especially need to have an understanding of market strategy. If you do not know what your strategy and game play will be, you very well could be in for a big loss. Take the time to analyze the day trading market, paying close attention to strategies and determine what you think will work best for you.
Never Use Money That You Can’t Afford To Lose
While this is true for any stock trading you may partake in, for day trading it is most critical. Never put up money that you need to pay current bills or other living expenses. Day trading is risky even for those that are experienced, and for beginners even more so. Take it slow, be cautious and use only extra funds that you have available to you.
Never Let Your Emotions Control What You Do
One of the biggest mistakes that day traders can make is to let emotions get in the way of making successful trades. If you hit it big one day do not let your emotional high lead you to taking higher risks the next day. Always go into every trade with a clear head and only after weighing the pros and cons. Bottom line, emotional trading is a risk you do not want to take.
In conclusion, if you take the time to educate yourself, you understand what your limits are and enter day trading with a level head, you have a much higher chance for success. So, if you are ready, jump in and give it a try. Go slow, and build on our experience and watch your profits grow.
Difficulties of Day Trading
While many think day traders are just people who make a lot of trades, the reality is day trading is different and difficult from typical stock trading. Here are some of the difficulties involved:
Turning a profit when paying commissions on each trade – there are free trades and discount trades available but commissions eat a lot of profits from the day trader. You might pay $10 or so per transaction, which means each security you buy and sell in a day trade costs $20 in commissions. If you’re trading with a small amount of money, like $1,000 or so, and performing five trades – you’re looking at 10% of your money going out in commissions. Commissions make it difficult for the day trader to turn a profit.
Selling for a small loss can result in huge losses for the day trader’s portfolio – discipline is required from the day trader. One loss can wipe out a week’s worth of successful trading. If you’re making $25 per trade before commissions, what happens if your position is down .5% or 1%? Should you wait… or sell? Holding your position or selling for a small loss, even just 2%, can result in huge losses to your portfolio.
A lack of consistency means no profit – the day trading market is competitive. There are many buyers and sellers competing over the same securities and looking to buy and sell at the best time. If you succeed 50% of the time – you’re doing well! Consistency is required and dedication for finding the best buying and selling opportunities for the securities you are day trading. Without consistency, you can expect a high failure rate.