Did you know that 99% of all day traders lose money? If you’re interested in becoming a day trader, you’re probably interested in how you can avoid the mistakes of this 99%.
A lot of people lose money with day trading because they don’t make use of a strategy. This is a problem because without a strategy, day trading is just like gambling.
This blog post aims to provide you with some day trading strategies you can use to increase your odds of making money. Though it’s hard to succeed with day trading, these strategies should bring you a bit closer to making a sweet profit from the stock market.
Should You Spend Some Time Practicing?
You should think about using a ‘paper trading system’ to help you learn more about the world of day trading. Paper trading is where you trade the stock market, using ‘virtual currency.’
This is helpful because it gives you the chance to see how your stock choices would play out with real money.
If you lose your entire paper trading account, you’d have also experienced the same with real money. Thus, a paper trading account can help you learn from ‘painful’ mistakes, without having to risk actual money.
Paper trading is also a good chance to test out the validity of certain trading strategies.
For instance, if you read a blog post that teaches you some new day trading strategies, try them out in a paper trading account. If you make money, then consider implementing these strategies into your real account.
Give Yourself Rules
Day trading, like any other form of trading, can be a highly emotional experience. This is a problem because it can result in you making bad decisions, that’ll lead to you missing out on potential profits.
The easiest way to combat this problem is by giving yourself some hard rules, that’ll guide your trading decisions.
One such rule is to decide on the amount of capital you’re going to risk, per trade.
For instance, you may have $10,000 in your trading account. But just because you have that much in your trading account, doesn’t mean that you’ll trade that entire sum. Instead, you’ll set a rule that dictates you’ll only use a maximum of 10% of your account, per trade.
Yes, this will limit your ability to gain from correct trading decisions. But it’ll also limit your losses if you ever make a bad trading choice.
You might also want to set an upper limit for each of the stocks that you’re trading.
This’ll mean that you sell a share, as soon as it’s locked in a certain level of profit. The amount you decide is going to depend on your situation. That’s because you’ll need to account for brokerage fees and maybe even taxes when determining the profit level of a trade.
News trading is when your trading decisions are based on news events that cause a ripple effect in the stock market.
For instance, if the central bank announces that it’s going to raise interest rates, certain financial products are going to go up, or down in price. You make money from these movements in the market, by pre-empting the news and adding products to your portfolio that you think are going to go up in price.
Of course, the main issue here is that you never know how the market is going to react to certain news items. You also don’t know what the ‘news’ is going to be. Thankfully, you can limit your losses, by studying past scenarios.
Suppose that inflation is above 2% and the central bank is soon going to make an announcement. You can study examples from the past, that detail what the central bank did when inflation was at a similar level. You can then use these historic decisions as a guide for what might happen in the future.
The daily pivot strategy dictates that traders earn money from the daily volatility of a particular stock.
To do this, you might take a look at the average trend for a particular stock.
You’ll then wait until the price of this stock, is below average. When you notice that it is, you buy it and wait until the price is slightly over average. As soon as it is, you’ll then place an order to sell the stock and take your profit for the day.
It’s essential you research the company you’re going to invest in. In doing so, you’ll be able to protect yourself from events that are going to cause extreme volatility in the stock price.
For example, if the company is going to release an earnings report, say in the next week or so, price movements will be volatile.
This means that the stock price will not stick to averages and will fluctuate violently as people try to predict the result of the earnings report. If you’re unaware of the upcoming earnings report, you may lose money as you fail to factor in this volatility, when making trading decisions.
With scalping, your goal is to sell a share, as soon as it makes a profit. You then do this over and over throughout the day, hoping that your earnings will amount to something significant by the end of the trading session.
Scalping is probably one of the hardest ways to make money from day trading as it can take a lot of work. If you take your eye off the ball, for even just a short period, you risk missing out on a potential profit.
If you’re going to adopt the scalping approach, you might want to set up automatic sell orders for your shares. This is where you tell your brokerage software to automatically sell a stock, once it reaches a certain price.
In doing so, you’ll find it a lot easier to lock in profits, even when you’re not at your trading desk. Of course, the profit will be small and so you’ll need to get back to your desk to place another trade.
Ready to Use These Day Trading Strategies?
Day trading represents one of the ways you can make money from the stock market. Like all forms of trading, day trading can also lead to huge losses if you’re not cautious.
Thankfully, you can use day trading strategies to limit your losses and maximize your profits.
One way you can do this is with the ‘news trading’ strategy, which allows you to profit from news reports. You can also use the ‘daily pivot’ strategy to figure out when specific stocks are underpriced and thus likely to generate a profit.
No matter what strategy you use, it’s vital that you have some robust rules in place. If you stick to your trading rules, you should be able to limit your losses, no matter what’s going on in the market.
Short on cash? Read this post to learn how you can get started with investing, without having to spend a lot of money.