A lot of people get discouraged when they try day trading, so let’s review some rules that are not allowed during this time frame!
Day traders are not permitted to run trades while markets are closed or while they are asleep!
Positions should be closed (at a profit or a loss) before the market closes each night, or before you decide when to stop trading.
There is too much risk to holding positions when you are asleep and cannot react to news events or volatile markets.
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Consistency is one of the most important things to know as a day trader. You would not want to trade when you are unable to focus, when not feeling well, or when there are distractions,
perhaps from your full-time job.
Day trading means investing money in the financial markets, so security is very significant. Make sure your plan is clear and can be followed with focus, patience, discipline & consistency.
Many traders like to keep to a strict routine to help keep their minds clear & focused on the markets.
Some traders focus on trading the first hour of the open in Europe or the USA. They learn how markets can behave differently at these times & take advantage of patterns that repeat themselves, taking profits quickly.
Others prefer to trade slightly longer term, holding positions for a few hours. I know traders that will only trade around closing time because they have found certain patterns that are more reliable at this time,
when many traders are closing positions and reducing risk.
Day traders earn profits from small fluctuations in the price of a forex pairs, commodities, stock markets & even bond markets & do not hesitate to enter or exit a position when their strategy generates a signal to buy or sell.
The best way to learn day trading is by doing it, so why not just go ahead and get started?
Day traders spend most of their time sitting around waiting for their next set up according to the rules of the strategies they have developed. They are not constantly actively trading.
Some of the best day traders spend more time waiting for an opportunity than actually holding open trades.
Technical analysis is probably the most popular tool for short term day traders and fundamentals are unlikely to influence the markets intraday.
Technical analysis involves studying prices trends & patterns in the hope that these will be repeated to give the trader an edge in the market.
Do not get caught up in the hype
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As we have seen, day trading is very attractive to some people due to its ease of access. However, this means that there are also many opportunities for frauds or scams.
Just because it seems easy does not mean that it is worth your money.
Day traders sometimes advertise using terms like “I will make you rich” or “Start making money today!” This can seem appealing as a way to lose confidence in the market.
Any investment has risks, but investing in day trading needs extra care since you could potentially lose all your money very quickly.
There is no magic formula for successful investing, but by following basic rules investors can reduce risk and achieve better returns.
Open a trading account
Starting to day trade means opening an investing or currency trading account with a broker that allows you to place trades automatically through software.
Most brokers offer a free trial so that you can check out their services before buying a premium level plan.
Day traders typically stay within very tight margins of gains and losses, which is what makes the strategy so attractive. By keeping the balance tighter,
the trader has more control over how much money they lose and must ALWAYS use stop-loss orders that execute automatically to close a losing position.
Most brokers offer some kind of free trading, usually called a demo account where you can buy or sell without spending any of your own money.
The accounts provide live prices and can be traded exactly like a real trading account but it is credited with an amount that you can play with, which allows you to trade without risks.
This is a great way to get your feet wet. In fact it is an important way to learn & try out the strategies you are developing but it is obviously important to treat the account as if it is your own real money.
This way you can try to experience the emotions that every trader goes through when they do start to trade real hard-earned money!!
I recommend trading a demo account for up to 3 months to get a realistic idea of whether you can develop a winning trading strategy.
This time will also allow you to decide if day trading is a career path you feel you can succeed at.
Once you have started trading & maybe becoming successful you can always go back to trading a demo account when you are trying to develop your strategies or experimenting with new strategies.
Some traders have more than 1 real money trading account, when they have different strategies that they are trading at the same time.
Choose your broker
Day traders pay a lot more in transaction costs than those who stick to regular investments. These fees include things such as brokers’ commissions & ‘slippage’ by buying at the offer price & selling at the (lower) bid price.
Brokers’ commissions are one of the biggest cost factors so you must find a broker that offers the tightest spreads.
Brokers will offer leverage on your deposit allowing you to trade far more than your deposit would otherwise allow. This is great when your trades are wining because it greatly amplifies the profits.
However when your trades are losing you can lose big & lose quickly. So you must fully understand the risks of leverage trading before your start.
Here are my top 2 broker recommendations:
Create your trading plan
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Now that you have got rid of all of the distractions, it is time to create your own rule set or system. This will be your place where you measure yourself as a trader!
You can use anything as a basis for this system. Some people organize their lives around work, so they make their money system working during business hours.
Others may trade less frequently but use day trading to build their second revenue stream to supplement income from their full-time job.
Whatever works best for you – just make sure it’s something that feels right and that you are able to stick to.
By creating your own rules, you will also learn more about yourself as a person and what qualities you should look for in a trading career and what doesn’t feel right.
By experimenting with different systems, you find out which ones don’t feel satisfying and thus push you towards having less successful trades or even quitting altogether.
That is totally normal and okay, we all need motivation at times! It’s important to recognize those times so that you don’t get too discouraged. For me, it’s always been my health and fitness, I never wanted to give up.