Like starting any other career, there is a lot to study while you’re a day trading beginner. Here are some tips to direct you in the right direction as you start your journey. Day trading is similarly known as intraday trading or short-term trading is one of the most misunderstood trading techniques. These smart day trading tips could benefit traders of all experience levels to develop more effective daily trading strategies for their portfolios.
Who Should Day Trade?
Wondering if you should day trade? The way to make a profit in any market is to find a trading style that suits your personality. Some people have a natural talent set that is more suitable for day trading than others. Becoming a successful as a day trader needs a lot more than just a good day trading strategy. You also have to have:
- Mental discipline.
- Quick thinking abilities.
- The ability to work under tremendous pressure.
Decide What You Will Be Trading:
In order to choose the best broker for you, it’s really important to decide what type of financial instrument you’ll choose to trade. Most people assume that day traders trade simply stocks—but the possibilities can also embrace trading futures or forex, options, derivatives or currencies.
Beginning day traders must pick one—and master that type of market before moving on to others. Many beginning traders consider that you need over $25,000 begin day trading. While you do want over $25,000 to bypass the Pattern Day Trader rule, you do not need $25,000 to actually trade.
Best Times for Day Trading:
The stock market has a trend to produce most of its price movements during specific times of the day. So, what is the finest time for day trading? The best times for day trading are during the first and the last regular market trading hours, between 9:30 – 10:30 AM EST and 3:00 – 4:00 PM EST.
It’s well-documented that the stock market is the most volatile during the first hour of the trading day (9:30 – 10:30 AM EST) and the last hour of regular market trading (3:00 – 4:00 PM EST). These are often referred by the pros as the power hour stocks.
A day trading strategy can’t survive without volatility. Volatility is the life and breath of any prosperous day trader.
Explore options beyond trading stocks:
Trading stocks is where many day traders start, but that doesn’t mean day trading is incomplete to just trading stocks. Forex, futures, and options are three advantage classes that display volatility and liquidity just like stocks, making them ideal for day trading. And often, one of them will current attractive opportunities on a day when the stock market is working nowhere.
Know the Lingo:
Actually the method of day trading is vital to beginners’ understanding and basic knowledge, and unfortunately, can be confusing. Here are rare common terms to study in-depth before becoming a full-fledged expert day trader:
Ask: The price a seller is willing to retail for.
Bid: The price a buyer is eager to buy for.
Breakouts: When a stock “breaks out” beyond its previous resistance level
Candlesticks: A type of chart where each candle embodies the high, low, open and close for a given period.
Covering: Buying back the stocks that were traded short.
Float: The number of shares existing for public trading.
Gap Up/Down: While a stock opens above or below its previous closing price.
Going Long: Buying a stock with intentions of selling at an upper value.
High/Low of Day (HOD/LOD): A stock’s maximum or bottom price for the day
Hard-to-borrow: A stock that is not readily offered to short. Brokers will frequently charge an additional fee to those trying to short hard to use stocks.
Liquidity: The ease with which a stock can be bought or vended without drastically affecting the stock’s value
Low Float: A stock with a low amount of publicly traded shares, often times experiencing higher instability
Market makers: The companies responsible for facilitating buy & sell orders and maintaining liquidity in the markets.
Market Cap: The total dollar price of a company created on the stock’s price and outstanding shares.
Outstanding Shares: The total amount of shares delivered, including both the float and institutional ownership.
Profits and Losses (P&L): A portfolio’s gains/losses for a given period.
Red-to-Green and Green-to-Red: When a stock goes vice versa like being up on the day to down on the day.
Resistance: A price flat at which sellers repeatedly overpower buyers, making it difficult for the stock to rise in price.
Scalp: Taking advantage of very small price changes
Short Selling: Selling shares of a stock that you do not own in hopes of purchasing the shares back at a lower price.
Spread: The price difference between the offer and the ask
Support: A price level at which purchasers repeatedly overwhelm sellers, creating it difficult for the stock to drop lower in price.
Technical Analysis: Analyzing a stock’s historical price action (using charts and technical indicators) to forecast future movement.
Trend: The general course of a stock’s price movement. A stock can be both like in an uptrend or downtrend.
Once the trade analysis is completed and the trade is placed, even if it goes against them traders shouldn’t second-guess themselves or beat themselves up for errors. All-day traders experience losses, so it’s ok when the random trade doesn’t pan out, especially for a beginning day trader. When a loss happens, traders should evaluate the trade to confirm that they followed their personal established day trading rules and that they didn’t get in or out at the wrong time. Journal the trade, learn from any mistakes that were complete and move on to the next trade, building on that experience.
You should read our popular post TRADING STRATEGIES FOR BEGINNER TRADERS.