Day Trading…. Is It The Titanic For Your Finances
I want to tell you all of the commonly heard facts about day trading, then discuss easy steps that will keep you out of the statistics and blow up your account very easily.
Only a few years ago the phrase “Day Trading” used to be looked down upon by Wall Street big shots, however now it is common practice among people of all ages and experience. Day Trading is the practice of buying and selling financial instruments during the day with the hope that throughout the day the price will continue to climb or fall in value, allowing quick profits to be made. I will discuss in detail some easy steps to be a successful day trader. Some of the more commonly day traded financial instruments include stocks, options, futures contracts and currencies. The primary motivation for this strategy of trading is to reduce the risk of holding a position overnight, when the open price may have significantly changed from the previous day’s closing price. Traders that practice this form of trading are called “day traders” and are becoming more and more prevalent in the industry.
Day trading may be extremely profitable; however it carries a significant risk. To reduce risk I will discuss easy steps at the bottom for Day Traders to take. Most individual investors are not suited to be day traders as they lack the capital, time, and character to sustain devastating losses that can occur. The use of borrowing money (trading on margin) is common amongst day traders hoping that profits will be amplified through this leverage; however leveraging yourself also exposes you to a much higher risk of substantial losses. Day traders need to understand how margin works, how much time they’ll have to meet a margin call and the potential for getting in over their heads. Unfortunately many do not fully understand these concepts or simply do not pay attention to them.
In addition to the high risk factor, day trading can be extremely expensive in comparison to the “buy and hold” strategy, with the trader incurring multiple commissions and paying the spread multiple times a day. It is commonly stated that 80-90% of day traders lose money. Therefore traders should never use money they will need for daily living expenses or retirement to fund their accounts. Like any other type of trading, regardless of your level of experience, trading is a gamble and a trader needs to know exactly what they are gambling. All traders should know up front how much they need to cover expenses and break even.
1. Here is the bottom line, it is all about the right entry point. Most day traders think they can stop day trading as soon as the market closes, then take their watch list in the morning and run charts, find a nice stock and get in…. WRONG!!! It is all about the entry, why would anybody trade anything other than a breakout or breakdown???
2. Think cents, not %. If you make 34 cents on a 1,000 shares then you made $340… This may be half a % but the dollar amount is still the same. Don’t get lured in to .01 cent stocks because you can get a 50% return. The risk is not worth the reward in most cases.
3. Don’t let your trades go against you. If you have the 25k needed to day trade then sell the stock at your entry point and re-enter it at your entry if it goes against you and then comes back. So sell it when it is going down for a small 4 or 5 cent loss, then buy it again if it hits your entry.
4. Sell on technicals to increase your accuracy. Don’t rely on a certain dollar amount if you are a day trader. Technicals can get you out of a position if you are trading momentum, and get you out of a loser if the trade collapses allowing you to get the most out of your profits.
5. Have the right sources for your picks if you are not able to pick the right entries There are several sites for day traders that give nice accurate stock picks. One of the best and most accurate is http://www.best-free-stock-picks.com
Day Trading does have risk, but doing the right things can make it seem so easy you will wonder why everyone doesn’t do it.
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