Quick Guide to Day Trading for Beginners
Day trading involves making market predictions and opening and closing positions. As the name suggests, everything takes place in a single day. To do well with day trading, investors need to have a good eye for volatile investments that are likely to pay off. However, with volatility comes risk, which is why risk management is an essential skill. To do well with day trading, you need to remove emotions and be well prepared – we’ll help you with this below.
Proper Preparation
Before opening a position, you need to understand the market and understand all the risks involved. A great starting point for a beginner is learning trade-specific jargon. The best way to learn day trading terminology is to watch quality YouTube videos and read publications. Unfortunately, considering there’s no central glossary of trading terms, you will come across conflicting opinions. Therefore, it’s best to learn from a source that follows one strategy instead of dabbling in endless conflicting strategies.
After learning the market lingo and strategizing, put your skill to the test with a training simulator. The majority of trading platforms allow you to set up a demo account, which grants access to all functions and market information. The only difference is that you’re not connected with any real money.
Essential Tools for Day Trading
As well as a powerful computer and stable internet connection, you will need the following digital tools to succeed.
- Scanner. A stock scanner constantly monitors the markets to give you real-time insights. Day traders need this because of the short window.
- Charting platform. Charting platforms show market actions on a graph, making it easier to form predictions. Broker platforms often include these, but a dedicated charting platform will have more scope.
- Broker. A broker is a platform you will use to make trades. The best brokers have access to the rest of the tools needed by day traders.
Getting Started
After learning the lingo and sourcing the tools above, it’s time to open your account and get started with your first trade. Here are the steps to follow:
- Open an account with your chosen provider and make a deposit.
- Write your plan of action and adjust it every morning.
- Put the morning watchlist into tracking software.
- Follow through with your plan and don’t deviate.
- Assess your trades at the end of the day.
When you first start, the key is to take it slow and practice caution. If you have more capital and wish to invest in a company with no available shares, you can keep an eye on upcoming stock splits here. Having a written plan makes it easier to keep emotions out of the way.
How Much Money Will You Need?
One of the most common questions asked by a beginner day trader is “How much money will I need?”. To answer these questions, you need to determine how much you wish to make and how much you’re looking to earn.
The next step is to do a little bit of math. Let’s say you’re looking to make $100 daily, but you’ve only got $1k to deposit into your account. In this case, you will need to trade on stock worth $2.00 per share. At this cost, you can invest in 500 shares. To hit your $100 daily target, each share needs to increase by 20 cents.
The example above is extremely basic because it doesn’t factor in margin, which grants more trading power. For further information on how much money you will need, read this article.
Day trading is a risky business. You need to be prepared to lose money without becoming emotional. After coming up with a strategy, test it out through a demo account, which will give you a good indication of profit potential.
