Becoming a full time trader calls for excessive attention to detail, a logical mind, firm guts, and patience. In this venture, you will not receive help from others to tell you that you are doing the right thing. It is all up to you to determine the right moves and decisions even if the whole market tells you the other way around.
Learning your way to trading is not an easy process, but with hard work and sufficient knowledge, day trading can be a very lucrative undertaking for you. This article will teach you how to become a day trader efficiently.
Selecting Your Market
Novice traders like you have several markets to invest into. The following are just a few of the available markets and their known pros and cons, which you must recognize before you do online day trading.
- Stock Market – This is a popular market with an abundance of information online. You can take advantage of great liquidity and several stock options.
- Options – This market is acknowledged due to its leverage capability and incredible risk control with the use of various spreads. However, it can be thinly traded at times and has the potential to be influenced by huge players.
- Penny Stocks – With little capital you can start investing in this market. It is known for its volatility.
- Forex Market – In this market, there is no physical exchange of goods. One currency is paired against another. It has exceptional liquidity, low spread, and very controllable margin. It is also more steady than other markets. The drawback is that you are not likely to perform huge moves since you are required to employ margin to create significant gains without having to invest huge amount of money.
Planning Your Market Moves
The next essential step in getting educated about how to be a day trader is to create a game plan with very detailed rules. Since you are just starting out, it’s best to stick with a simple trading system with broadly available information. This will inhibit you from spending too much money on special software programs or reports. While these resources and tools can give you aid, they won’t bring you good return if you fail to become aware of the stock trading for beginners guide first and other crucial skills that a trader must have such as obedience, mental resilience, as well as money management.
It is highly recommended that you begin with a combination of three non-correlated pointers or indicators that you can take advantage without cost from your broker of choice. A great example would be merging a simple moving regular crossover with a good performance in standing trading volume from companies that significantly boost their earnings this year.
When you are already decided on your trading plan, design very explicit rules about when you will enter the market and when you will exit. Also, don’t forget to prepare a stop-loss.
Try out your plan together with back testing as well as real time testing utilizing a “virtual or fake” account that doesn’t need cash. Check with your online broker if he offers fake accounts accessible for testing.
Day Trading Caution
When the back test on your intraday trading system presents 90%+ win rate, most likely you have added several factors to achieve success. This is known as fitting the curve. What will potentially occur is that in real trading conditions, your test result will not ever pop up. You don’t want to utilize more than three or four market indicators. Search for trades that encompass 60% or so win rate, but make sure that it has much higher win rate than loss rate.
Once you have an affluent trading plan, try and trade it until you establish a better strategy that you will test again. You should strive to develop new trading techniques without using your actual trading account.
The stock market for dummies will teach you some of the best strategies on money management. Deem it as a very important segment in learning how to day trade and plan for it ahead of time.
It’s suggested that you only risk about 2% of your investment portfolio on any trade. You must ascertain a stop loss at the outset so you distinguish your risk every trade.
Join successful traders at conventions, forums, and in schools to have a good grasp on how to become a day trader. This will let you enhance and advance your knowledge in statistical analysis as well.