The process of buying stocks and selling them on the very same day id called day trading. The biggest advantage of day trading is that you can benefit from both rising and falling of the market. It can prove to be a very profitable business if you have definite strategies and pre-determined plans that will ensure profit by taking in account the risks involved.
Cover the basics:
The very first step to learn day trading is to be well informed about the basics revolving around stock markets which majorly include the fundamentals of determining the entry and exit price of your recommended stocks. The most popular way to do this is to go through trading books that provide effective methods of trading instruction. Keep an eye out for daily market analysis and live trading updates by experts which will help you gather valuable insight regarding what you are about to get into.
Understand the type of stocks:
Out of the various options of stocks available, there are only a certain type that can be regarded as ideal candidates to be used in trading. Before you select your stocks, it is important to understand the two main factors that determine the validity of a stock. The first one is liquidity that enables you to enter and exit a good price on the selected stock. The second is volatility that specifies the measure of the expected price range on a daily basis. Higher the volatility, more is the profit or loss.
Find a price target:
Identifying a price target is one of the key procedures of day trading which is entirely dependent upon your trading style. There are various strategies that can be employed to determine a price target. One of these strategies is called scalping in which you sell the stocks as soon as the trade becomes profitable enough. If you want to profit from the volatility of a stock, then the best approach is buying stocks during the low-time of the day and selling them when high-time of the day ensues. This strategy is called fading. Some traders tend to follow the momentum strategy in which they buy stocks at the time of news release indicating the high-time of the day and tend to ride that trend until signs of reversal are exhibited.
The biggest advantage of day trading is that you get to trade by the margin which makes you less vulnerable to sharp price changes than the regular traders. Calculating the stop loss, therefore, becomes one of the most crucial steps of learning day trading. A stop-loss can be created at a point where your entry price is most likely to be violated. This helps you during the times when the market makes an unexpected turn, allowing you to exit your position immediately. You can also choose to place a physical stop-loss that suits your level of risk tolerance.
Evaluate your performance:
It is very essential to remember that day trading requires continuous effort and improvement in your everyday strategies. Understand that traders lose money, so expecting that you will be able to make triple figures in your initial days itself is wrong. Evaluating your performance not only means that you calculate your gain or loss percentages but it also involves how strictly you choose to adhere to your individual strategies. By keeping a positive mindset you will be able to identify where the problems exist and how you can solve them easily.