Day trading is the practice of buying and selling a financial instrument on the same day, or perhaps numerous times throughout the day. If done properly, taking advantage of slight price movement can be a profitable strategy. But for beginners and anyone who doesn’t have a strategy in place or is inconsistent in keeping an eye on the market, it can be perilous. A trader who wants to succeed in active day trading must be willing to give up all his day to watching the market and a significant portion of the night scouting for market intelligence. This is analogous to the biblical verse “He who keeps Israel will neither slumber nor sleep.”
Day traders should approach their work with diligence, commitment, objectivity, and emotionlessness. Day traders usually take liquidity, volatility, and volume into account when deciding which stocks to buy.
To locate purchasing points, day traders use candlestick chart patterns, trendlines and triangles, volume, and other market knowledge.
These are the day trading strategies.
Day traders need to arm themselves with market information and developments that have an impact on equities in addition to the professional abilities expected of equity traders. These include forward-looking indicators like company disclosures, interest rate strategies, and other news about the economy, business, and finances.
Allocate Funds for trading
Make a commitment to the amount of capital you are willing to risk on each trade. Many successful day traders only risk 1% to 2% of their account balance or less when they enter a trade.
Make a surplus of cash available for trading that you are willing to lose. If you have a trading account of N20,000 and you are willing to risk 0.5% of your capital on each transaction, your maximum loss per trade will be N100 (0.5% x N20,000).
Day traders need to keep an eye on the markets and be on the lookout for opportunities that may arise at any time throughout trading hours. The idea is to move quickly and deliberately. As a result, it follows that to be a good trader, you must be willing to give up a significant portion of your day to actively handle price volatility and market intelligence.
As beginners, limit your attention to no more than one or two stocks at a time. With fewer stocks, it is simpler to track and identify opportunities. When you fully understand the market and your strategy, you can expand the constituents of your trading portfolio.
Avoid Illiquid Stocks
Shares of companies with a small or irregular trading float are considered illiquid stocks. Because of this, the likelihood of winning the jackpot with them is frequently slim. It is advised to stay away unless you are aware of a genuine opportunity and have done your homework.
Time the Trades
Price volatility is a result of the large number of orders made by traders and investors that start to execute as soon as the markets open in the morning. At the open, an experienced player might be able to spot trends and time orders to benefit. But for newcomers, it could be preferable to observe the market for the first 15 to 20 minutes before acting.
Typically, the middle of the day is less volatile. As the closing bell approaches, the pace starts to build up once again. Even if they present chances, newcomers should initially avoid rush hours.
Cut Losses when the need arises
When necessary, it is wise to reduce losses. You must have the ability to choose the orders you’ll employ to close off trading positions. Perhaps market or limit orders? A market order is filled at the current best price with no price guarantee. When you don’t care about getting filled at a particular price and simply want to enter or exit the market, it can be helpful.
The price is guaranteed by a limit order, but the execution is not. Because you determine the price at which your order should be filled, limit orders can help you trade more precisely and confidently. Limit orders allow you to reduce losses. However, your order won’t be filled if the market doesn’t reach your pricing, and you will maintain your position.
Be Realistic About Profits
It is significant to remember that some trading decisions might not be successful. If this occurs, immediately take a loss. 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 that the financial risk associated with each trade is restricted to a predetermined portion of your account and that the entry and exit strategies are well-defined.