10 Steps To Becoming A Day Trader
Whereas some people are against the idea of day trading, others love it to the core because they view it as a quick way to lock in small profits from the markets. However, many people still don’t do well in it despite day trading being viewed by this category of people as the best way to make money off the markets. So what exactly does it take to become a successful day trader?
1. Start by assessing yourself
You cannot day trade successfully if you’ve not assessed your knowledge, skill, and personal traits. Are you willing to sit in front of your desktop to monitor open positions for long hours? Do you have the time? Are you committed such that you’re always willing to learn? You should even ask yourself if you understand market psychology well enough to make profits in the long run.
2. Get sufficient starting capital
Most day traders think that there is lots of money to be made day trading with little capital. But that’s a very bad mentality towards the market. If you are a novice and have considered the first point, you should at least start with $10,000. But if you are a wealthy individual, it doesn’t always harm to get started with at least $100,000.
3. Understand how the market functions
You need to know when the market is most active and when it is not. You have to understand the impact of news releases, margin requirements, and trading instruments on your ultimate goals. These will influence the outcome of your trades.
4. Know what you want to trade
The internet has a vast array of assets to trade. You can trade stocks, currency pairs, metals, ETFs, you name it. Do some research online and settle for one or two, provided you have a thorough grasp of the fundamentals that drive that particular asset price.
5. Find a trading strategy
This is the most difficult part of it. Even after following the above points, you might find yourself stack at this level. Everyone has their own trading strategy, and it takes patience and hard work to build an effective trading strategy. You will make errors in the process. But the most important thing is to come up with a strategy that you’re most comfortable with.
6. The trading plan should take care of other elements too
Now that you have a trading strategy at your disposal, you need to figure out how much capital you’re willing to commit, the type of asset you will trade, the number of times you will take positions in any given day, the amount you will risk and how you shall enter/exit the markets.
7. Money management skills will save you in the long run
Some people have been shown to trade their way to profits only to end up blowing every single penny in that account because of a series of positions that went against them.
So if you have sufficient capital, start with at least $10,000 and keep your risk below 2%. But if you have to risk more, let it not go beyond 5%. That way, a single trade-gone-wrong will not harm your account balance.
8. Broker charges
Now that the hard work is out of the way, choosing a good broker with minimal fees is crucial. Some brokers charge a lot of fees which can quickly add up especially if you are a day trader. Remember, some brokers will charge a commission for every position opened. But since you’re a day trader, you’re likely to open multiple positions in a day. Fees and other charges can quickly add up on you.
9. Test your skills
You cannot develop these strategies in theory alone. You have to practice them on a virtual money account first. This way, you will be assured of success going by the back-tested results.
10. Start small
If you are the blessed one who pours $100,000 into an online account, then the only advice you need at this point is to make sure that a big chunk of that money is not being committed to your very first trade. Go slowly and increase your trade volume or lot size as you expand your account.
If you’ve followed these tips, then chances are that you will succeed in the long run. Don’t be put off by a few drawbacks here and there. Losing is part of the game. But you have to ultimately make profit from your hard work.