Day Trading: Tips and Strategies to Navigate the Risks

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“Professional” day trading can be a very lucrative career for a tiny fraction of those who try it.

Day trading involves opening and closing your market positions within a single trading day, aiming to profit off intraday price changes (Of course, you can always leave trades open for longer depending on the strategy, but the principle is the same - these are all very short-term trades).
Day trading requires time commitment, a wealth of knowledge, and sizeable starting capital.
There are many different techniques and strategies that day traders use, each with their fair share of critics (but the main criticism is that most won’t work consistently for anyone, far less an amateur trader).

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!

Tips for Day Trading

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.

1. Read Up

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.

2. Set Aside Time and Money

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!

3. Make Use of Automated Orders

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:

Stop-Loss Order: set a price mark where you will automatically sell your holdings to cap your losses (set below the current market price) just in case the price continues falling past this price instead of bouncing back up.
Buy Limit Order: set a price mark below which you will automatically buy the financial instrument (set below the current market price) - this is when you expect the price to rise but don't want to keep buying all the way up.

4. Start With a Trading Simulator

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.

The Psychology of Trading

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:

Set clear entry and exit rules for your trades, and make use of automatic orders to execute them
Focus more on learning how to consistently make profitable trades instead of just focusing on the profitable trades
When a loss occurs, take a breather and find out why your expectations were wrong or just accept that markets are unpredictable and move on - don't take it personally!
Pick up meditation or other mental exercises to help maintain your composure

TIPS FOR DAY TRADING. COMPLETED. ✅

Sources:

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