Day trading

 Day treading or Beginner's 

Strategies

Introduction

Day trading involves actively buying and selling securities within the same day, trying to capitalize, on short-term changes in price. Those involved in day trading often borrow or leverage capital each day in order to purchase additional assets−but it also substantially increases your risk.Day trading usually refers to the practice of purchasing and selling a security within a single trading day. It can occur in any marketplace but is most common in the foreign exchange (forex) and stock markets. Day traders are typically well educated and well funded. They use high amounts of leverage and short-term trading strategies to capitalize on small price movements that occur in highly liquid stocks or currencies.

Day traders are attuned to events that cause short-term market moves. Trading based on the news is a popular technique. Scheduled announcements such as economic statistics, corporate earnings, or interest rate are subject to market expectations and Markets psychology. Markets react when those expectations are not met or are exceeded usually with sudden, significant moves which can greatly benefit day traders.

Day Trading Strategies for Beginners

1. Knowledge Is Power

In addition to knowledge of day trading procedures, day traders need to keep up on the latest stock market news and events that affect stocks. This can include the Federal reserve   system interest rate plans, leading indicator announcements, and other economic, business, and financial news.

2. Set Aside Funds

Assess and commit to the amount of capital you're willing to risk on each trade. Many successful day traders risk less than 1% to 2% of their accounts per trade. If you have a $40,000 treading account and are willing to risk 0.5% of your capital on each trade, your maximum loss per trade is $200 (0.5% x $40,000).

3. Set Aside Time

Day trading requires your time and attention. In fact, you'll need to give up most of your day. Don’t consider it if you have limited time to spare.

Day trading requires a trader to track the markets and spot opportunities that can arise at any time during trading hours. Being aware and moving quickly are key.

4. Start Small

As a beginner, focus on a maximum of one to two stocks during a session. Tracking and finding opportunities is easier with just a few stocks. Recently, it has become increasingly common to trade fractional shares. That lets you specify smaller dollar amounts that you wish to invest.

5. Avoid Penny Stocks

You're probably looking for deals and low prices but stay away from penny stocks. These stocks are often illiquid and the chances of hitting the jackpot with them are often bleak.

Many stocks trading under $5 a share become delisted from major stock exchanges and are only tradable over the counter (OTC). Unless you see a real opportunity and have done your research, steer clear of these.

6. Time Those Trades

Many orders placed by investors and traders begin to execute as soon as the markets open in the morning, which contributes to price volatility. A seasoned player may be able to recognize patterns at the open and time orders to make profits. For beginners, though, it may be better to read the market without making any moves for the first 15 to 20 minutes.

7. Cut Losses With Limit Orders

Decide what type of orders you'll use to enter and exit trades. Will you use market order or limit order? A market order is executed at the best price available at the time, with no price guarantee. It's useful when you just want in or out of the market and don't care about getting filled at a specific price.

8. Be Realistic About Profits

A strategy doesn't need to succeed all the time to be profitable. Many successful traders may only make profits on 50% to 60% of their trades. However, they make more on their winners than they lose on their losers. Make sure the financial risk on each trade is limited to a specific percentage of your account and that entry and exit methods are clearly defined.

9. Stay Cool

There are times when the stock market tests your nerves. As a day trader, you need to learn to keep greed, hope, and fear at bay. Decisions should be governed by logic and not emotion.

10. Stick to the Plan

Successful traders have to move fast, but they don't have to think fast. Why? Because they've developed a trading strategy in advance, along with the discipline to stick to it. It is important to follow your formula closely rather than try to chase profits. Don't let your emotions get the best of you and make you abandon your strategy. Bear in mind a mantra of day traders: plan your trade and trade your plan.

Characteristics of a Day Trader

Professional day traders—those who trade for a living rather than as a hobby—are typically well established in the field.They usually have in-depth knowledge of the marketplace, too. Here are some of the prerequisites required to be a successful day trader.

Knowledge and experience in the marketplace

Individuals who attempt to day-trade without an understanding of market fundamental often lose money. Technical analysis and chart reading are both good skills for a day trader to have. But without a more in-depth understanding of the market and its unique risks, charts may prove deceiving. Do your due diligence and understand the particular ins and outs of the products you trade.

Sufficient capital

Day traders use only risk capital they can afford to lose. This not only protects them from financial ruin but also helps eliminate emotion from their trading. A large amount of capital is often necessary to capitalize effectively on intraday price movements. Having access to adequate capital is very important because most day trading employs a high degree of leverage in margin accounts, and volatile market swings can trigger big margin calls on short notice.

Strategy

A trader needs an edge over the rest of the market. Day traders use several different strategies, including swing treading, arbitrage, and trading news. They refine these strategies until they produce consistent profits and effectively limit losses.

Day Trading for a Living

There are two primary divisions of professional day traders: those who work alone, and/or those who work for a larger institution.

Access to a trading desk

This is usually reserved for traders who work for larger institutions or those who manage large amounts of money. The trading or dealing desk provides these traders with instantaneous order executions, which are particularly important when sharp price movements occur. For example, when an acquisition is announced, day traders looking at marger arbitrage, can place their orders before the rest of the market is able to take advantage of the price differential.

Multiple news sources

News provides the majority of opportunities from which day traders capitalize, so it is imperative to be the first to know when something significant happens. The typical trading room has access to the multiple leading newswires, constant coverage from news organizations, and software that constantly analyzes news sources for important stories.  

What Is Day Trading’s Buying Power?

Buying power refers to the total funds that an investor has available to trade securities, and it equals cash held in the account plus available margin. According to FINRA rules, a broker-dealer client who is designated as a pattern day trader may trade up to four times their maintain margin excess as of the previous day’s close of business for equities.

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