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Often touted as a get-rich-quick scheme, day trading may be on many new investors’ minds. However, the reality is that day traders face enormous risks to reap any rewards, and most financial industry professionals don’t believe that the rewards justify the level of risk. Most compare day trading to gambling!
Day trading is indeed intriguing and highly enticing, but it’s good to note that there is a common statistic thrown around that 80% of day traders lose money, 10% break even, and only 10% make good money consistently. Some even say that 90% of traders lose money in the long run. If you’re still undaunted by the prospects of day trading, then here’re some tips just for you.
As we’ve mentioned, you need a wealth of knowledge to do day trading! It’s not just the basic understanding of reading graphs or more advanced concepts like short squeezes and options market structures, etc. You need to keep up with the latest business and market news and events that may or may not affect asset prices. If you’re eyeing shares, make sure to read up and keep up with the company, its subsidiaries, the industry and the countries the company is in, amongst many, many other things.
Day trading will take up a bulk of your time and effort, which is why it’s a full-time job for many who do it. You also require significant starting capital if you want to start as an independent day trader. Many successful day traders only allocate 1% to 2% of their account for each trade opened since the entire initial sum in each trade may be easily wiped out depending on the amount of leverage used!
You're likely to use online brokerage platforms if you’re a day trader. As such, you can use the various types of orders available. Here are some of the commonly used ones that you may find on your trading platforms:
Most online brokerage platforms have trading simulators or demo accounts. These use real-time financial asset prices, but you use an account with "fake" money to trade. It’s like a trial to see if you could do well as a day trader without risking anything (or gaining anything) except your confidence! After all, these brokers do want to make money off your real money trades.
If you’re considering delving into day trading, we recommend giving trading simulators a go for the first few months. Take note that success in a simulator does not mean success with your real, hard-earned cash. The main reason is the effect of your psychology in both profitable and unprofitable trading situations - if there is one single secret sauce for successful trading, it's control of your emotions! Still, it’s a good way to gauge whether you’re out of your depth.
An important aspect of day trading, or any trading for that matter, is to keep your emotions in check. Traders often have to make snap decisions regarding selecting trades and the timing of trades, so they need to be in a logical state of mind that represses fear and greed. Fear and greed are two of the strongest emotions that drive investors to make irrational decisions. (The third, in our opinion, is ego, a nasty one that male investors in particular struggle with).
Fear of potential losses may cause investors to be more averse to risk, limiting their potential earnings. Investors may also become stressed if their positions are loss-making, resulting in them making reckless decisions out of fear and frustration. Greed for higher earnings may cause investors to take on higher levels of risk that they are not prepared to handle (such as leveraged financial derivatives) or delay closing a profitable position.
Some recommended ways of controlling your emotions involve:
TIPS FOR DAY TRADING. COMPLETED. ✅
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