Day trading refers to the purchase and sale of security assets within the same day of trading. Short-term trading or intraday trading is another word for day trading. Day trading is viewed as a riskier and volatile investment since it involves trading within a single day. However, the risk can be overcome by the strategies discussed below.
Strategies on breakout should be well analysed by an investor in the day trading markets. A beginner should enter into a long position when the prices are higher and in a short position when the prices are lower. The importance of this is that it reduces the possibility of an asset to rise above a certain price which is volatile.
Day trading requires an individual to identify possible gaps in the market. The gaps in the market occur due to the disequilibrium of supply and demand for financial securities. Usually, the stock market are affected by forces of supply and demand in that the prices go up when the supply is less than the demand. A fall occurs when supply exceeds demand in the financial markets.
Besides, anyone who engages in day trading should set price goals for the day before commencing trading. Determining the targeted loss and profit to be expected in the day trading results in avoidance of much loss in the market. The target set by the individual reduces the greedy expectation of an individual from spikes of prices in the market.
Also, scalping is considered as a strategy in day trading activities. It involves selling security when it results in high returns when traded in the financial market. The profitability is risky to determine hence the need for a higher probability attachment for its occurrence. Therefore, a financial instrument that is volatile and highly liquid should be identified.
The beginner should also understand the risk involved in trading in the financial markets. A beginner should risk a limited amount of fund that makes a significant reward when successful. Taking a small loss encourages the traders to trade more and even come back after the losses. The loss is lower that an investor can bear its outcome for a short time before trading again.
Momentum is another strategy that can be used by a beginner. The strategy revolves around acting on new sources of information and identification of trends of security with the high-volume being traded. This strategy involves an individual holding on to the asset until it shows assign of high benefit when traded. It requires a current stock news update in the financial market to be achieved.
Patience is a virtue that every individual should inhibit in the day trading of securities in the financial markets. To succeed, an individual does not have to trade daily but trade on specific days when there is an opportunity in the markets. An individual needs to plan when to trade and then trade without going trading with no consideration of the outcomes.
A beginner can also use a stop-loss strategy in open day trading. This strategy involves getting the difference between the amount an individual is willing to risk and the quoted price at entry then placing a stop-loss order. The simplicity of the strategy is that the beginner does not engage in complex calculations to determine stop-loss order.
Fading strategy involves dealing with stock after they have rapidly moved upward through shorting them. It assumes that stocks are excessively bought, those who buy stock earlier are ready to take profits and the existing buyers opt to leave the markets. The beginner targets this movement and can make a lot of profit through accurate observation.
To achieve a high return from day trading, then, discipline is required. Different rules and regulations used in day trading need to be adhered to. Going against the rules have a greater consequence in that the trader fails to get the return as desired. Greed has facilitated most of the individuals not to adhere to the rules hence making losses in the financial markets.
A Technical analysis of the market needs to be done by the beginner. Before getting to trade in the day trading, the beginner should know what type of assets are traded on that particular market. In addition, the owners of the assets, the prices of the asset and the performance of the assets over a long period. Technical tools that can be used include the relative strength index.
An investor should be equipped with relevant knowledge about different stock in the market. Day trading does not involve only trading stock from one company but variety. Having a variety of stock information facilitates adequate information on investors on what to trade. The information is accessed by the individual through different companies’ websites.
A beginner can also apply a contrarian investing strategy in the open day market. The strategy assumes that a rise in price is followed by a drop in the future based. A person hence buys the security when the price is low with an expectation of selling it once the price has risen. This results to profit in the financial market during day trading.
Day trading is associated with inevitable risks which include unexpected outcomes from other markets, unsuitable economic news. There is a need for an individual to establish before engaging in this trade on how to manage the risks. One of the proper ways is the diversification of security into different stocks to ensure no total loss in the market transactions.
Besides, a strategy on how to accept the outcome should be put into place. Day trading does not only involve trading but also analysis on how to respond to the outcome. A beginner should be in a position to accept either positive or negative outcomes and know how to deal with them without blaming oneself. Lessons facilitate greater returns to the future.
Day trading requires a lot of practice for an individual to succeed. The strategies explained above are important for any individual who wants to engage in day trading. Without the knowledge of these strategies then an investor will not engage in day trading since it involves different types of risks. Hence, need to adhere to the above strategies.