It used to be that day trading was the domain of investment bankers and other financial professionals. Such investing was typically viewed as too risky for inexperienced investors, especially if they ventured into it simply to make a quick profit. But thanks to the information age, day stock trading software, and lots of online help, day trading is becoming more and more inviting to amateurs. Although it’s rare, more than one amateur has learned the art so well it has become a full-time occupation.
If you’re new to the day trading experience there are definitely some things you should and should not do. We’ve listed below some of the most important tips gleaned from dozens of different day trading resources. While our list is by no means conclusive, it is a good start. Before you liquidate all your assets and jump into day trading, we suggest you study, study, and study some more.
Set Clear Limits
Day trading can be an emotional experience, especially for the novice. It is important to set limits before you ever begin looking at investments. These limits will help you control your day trading activity as long as you strictly adhere to them.
But if you allow emotion to get in the way, and you regularly exceed your limits, you could be one of those day traders whose careers ends up being cut short.
There are basically three limits you’re after: maximum purchase price, minimum sale price, and exit price. The maximum purchase price is pretty easy to adhere to; the minimum sale price and the exit price, not so much. The exit price is ideally what you’d like to sell your investments for at the end of the day. However, if a particular investment does not go as well as you planned, you have to have a backup price which is the minimum amount you’re willing to sell for. These three minimums will largely control how you use your resources to reap profits.
Track Your Progress
To be successful at anything you need to know how you’ve done in the past – in order to make adjustments for the future. Without proper tracking of your investments you’ll never be able to get beyond trading by instinct. So make sure you keep track of every investment and all the parameters surrounding it: when you purchased, how much you purchased, sale and purchase price, etc. If you’re looking to buy day trader software you might consider a package that automatically tracks your investments and gives you strategic tips for future transactions.
Avoid Margin Trading
Although there are plenty of other tips we could give you, among the most important is that you avoid margin trading. In layman’s terms, margin trading allows you to borrow money from your brokerage in order to invest in amounts larger than your current portfolio. This is a dangerous practice for all but the most successful day traders because it can quickly wipe out everything you own and put you in large-scale debt. In fact, margin trading is what nearly wiped out the market back in the 1990s. Even the great stock market crash of 1929 was predicated on practices similar to margin trading. So don’t do it or at least try opening a forex demo account and practicing there.
At the end of the day successful day trading is a combination of knowledge, skill, and art. The best day traders can earn more than a comfortable living after gaining sufficient experience. Those who can’t make a full-time living can still use day trading to their advantage, building a comfortable nest egg with which to retire.