Are you ready to day trade?
You’ve got everything you need: your desktop computer setup, an idea of how the stock market works, and most importantly, a can-do attitude and a burning entrepreneurial spirit. You’ve got this!
But wait, before you jump into the world of day trading, there are a few things you should know about how the whole thing operates. Millions of day-traders have jumped into the market head-first; don’t you think it’s a good idea to benefit from their battle-tested experience?
Read on, future master of the stock market! And find out some of the day trading basics that will help you hit the ground running.
Ready to learn how to get into day trading? Then consider this article your Day Trading 101 crash course.
What Is Day Trading?
Obvious question, but let’s get it out of the way right out of the gate. At its core, day trading is the act of buying and selling a security during the same market day.
With that statement alone, you now have some ideas of what talents a good day trader is going to have to develop.
You will be looking for trends. The market may seem chaotic, but when you look at it from a bird’s eye view, it can have some identifiable patterns; patterns that you are going to be developing a sixth sense to identify.
You are also going to be consistent. Big-money wheeling and dealing may be what day trading looks like in the movies, but successful day traders aren’t looking for the occasional big score; what they want are steady profits based on day-to-day smart, informed investments.
All of this sound simple? On the surface, sure; but like chess, you can learn day trading basics in a short time then spend a lifetime mastering it.
Qualities Of A Successful Day Trader
Our "Stock Trading for Dummies" course continues with an idea of what a successful day trader looks like. It takes a certain kind of person to succeed in the fast-paced world of day trading. I’m sure you’re wondering what kind of traits this special person needs to possess.
First of all, you need knowledge of the marketplace. Now, this doesn’t mean you have to be an expert, but having a basic handle on concepts like “margins,” “dividends,” and the difference between a “bear” and a “bull” market are essential foundational knowledge.
Second, you need sufficient capital; this means enough money to invest, but not a huge amount of your net worth. The old maxim of investing no more than five percent of your total net worth (known as “risk capital”) is a great rule of thumb.
Finally, you need a plan. There are as many day trading strategies as there are day traders, and you’ve got to have one in mind before you can even begin to invest your capital.
Here’s a little more day trading help.
Like I said, every day trader’s got their own strategy.
However, most of these techniques are variations on a few key practices, but with that individual trader’s own spin.
Here are a few of the most common day trading techniques.
- Trend Following – This is a strategy based on following what’s actually happening in the market, rather than buy and selling based on fundamental attributes of companies. That blue chip stock may have a reputation for performing well, but it hasn’t been looking so hot this last week. A trend follower invests based on this current information.
- Contrarian Investing – We all know how people’s view of a stock can affect how it performs, regardless its actual strength. A contrarian investor gets past what the crowd has to say about a stock, and invests based upon a level-headed facet-based view of how he thinks it’ll be performing.
- Range Trading – This one’s a little different, since it may break the informal day trading rule of buying and selling a stock within one market day. In range trading, a stock will be held onto long enough for the buyer to get a sense of the highs and lows of the stock within a span of a day, maybe longer. Once the trader knows where the value of the stock is going to peak, he sells it for a tidy profit.
Getting into even one of these strategies in detail could be an article all by itself, now imagine the combinations you can make by putting them (and more advanced strategies) together!.
With the above information, you also understand what day trading is, exactly, what rules you should follow, some of the legal implications, as well as the qualities of a successful day trader.
It’s not a game for everyone, but if you’re ready to let that entrepreneurial spirit take hold and learn how to make the market work for you, you could be standing at the threshold of an exciting, and profitable, new career.