Looking to day trade? If you are, then there are some things that you need to keep in mind before you get started. That way you can make the most out of your day trading activities as much as possible, if you choose to take that route. Some things to keep in mind include being realistic about your goals, knowing the basics of stocks, and having the right mindset without emotion getting in your way.
Want To Day Trade? 6 Tips Before You Start Trading
1. Be realistic.
When you’re realistic about something, you keep yourself grounded and level headed. If the outcome exceeds your expectations, then great. Isn’t it much better to be surprised when an investment turns out better than what you expect, rather than to be horribly disappointed when you’re unable to meet unrealistic goals?
In other words, know that when you invest today, you won’t automatically become rich tomorrow. Trading and investing are not get rich quickly schemes — they involve training, experience, education and practice. Good returns take time, so you’ll need to be patient.
2. Know the basics behind stocks and the markets.
To become a successful day trader, you must be highly knowledgeable about the markets. As a trader, you take what you know about a stock’s past history and current performance, and you make short-term trades based on that knowledge. Instead of looking at the fundamentals of a stock and the company behind it, you look at the stock’s short-term price variations and you take advantage of them in order to make money — that is, you employ technical analysis strategies. There’s a lot of learning involved in becoming a trader who can comfortably make quick market calls. You can certainly learn a lot about trading by checking into both free and paid services that give you the lowdown on technical analysis and market timing. Check out this post on the MarketClub Stock Trading System for more details!
3. Have the right mindset.
Don’t be a frightened trader. If you’re going to be a day trader, then you’ll need to get rid of the nerves. Unfortunately, many people make moves based on emotion — by doing so, they’re bound to make investing mistakes. Market timing is really not for the faint of heart: if you’re going to engage in this sort of activity, realize that it’s nothing short of gambling when you trade without a clear strategy. Of course, luck can make or break your move but you can stack the odds in your favor by applying the right trading strategies with the right mindset.
4. Prepare for stress and expenses.
Here’s the reality: it takes a LOT to become a day trader. You’ll have to keep watching the markets constantly, keeping your eyes on a million different things. Also, traders incur quite a lot of expenses, with training fees and trading commissions getting a large bite of their earnings.
5. Prepare for losses.
The big advice here is that you should never risk what you cannot afford to lose. New day traders are bound to make lots of mistakes when they start trading, but many such traders never really make money at all, no matter how long they engage in these activities.
6. Avoid investing.
Investors normally keep their money in the markets over long periods of time while day traders hold on to stocks for the shortest amount of time. Some traders choose to sit on their stocks for a day or two, while others may hold their positions for a little bit longer in order to ride the momentum of a stock or the market. But if you’re going to follow a market strategy, make sure it is a clear one: do not confuse investing with trading. It’s probably a bad idea to do both strategies at the same time when dealing with a stock.
Ultimately, day trading is really a “sport” that’s not suitable for most people. Chances are, you won’t make money this way and will likely lose money over time. If you want to be a successful stock investor, the best way to go about things is to invest for the long term, practicing diversification and asset allocation strategies. It may take a while to see your assets grow, but this way, you’ll have a much better chance at making any kind of money at all.
{ 2 comments… read them below or add one }
I think your most important point is; “Do not confuse investing with trading”.
Unless you are very lucky or in a positive time of the markets, you are more likely to lose than gain with day trading. The high cost of daily trading commissions can tip the odds to the house’s favor, much like in gambling.
On the other hand, Investing over the long-term is more likely to create a profit than a loss. By avoiding daily commissions and holding good investments, you tip the odds to your favor.
I believe that day trading is certainly not recommended for the average investor. But there are people who do make a living and are successful at it, and even they had to start somewhere.
If you try it and realize you aren’t cut out for it (which you should know pretty quickly), then cut your losses and stop. Passive index investing is really the best way for average investors to make money, just IMO.