Author: Albert Holl
Day trading is a growing field today as technology and treading tools advance, many people are interested in the glamour that this career holds. If you are interested in day trading, it is important to understand the different day trading strategies so that you can effectively trade penny stocks. There is a fine art to this occupation, and learning how to do it the right way can make or break your day trading career. Much money can be made in this activity, it is crucial that you implement the right day trading strategies.
Generally, there are two types of day traders, the trader that works for a bank or financial institution, and the trader that works independently. Obviously, as an independent day trader, you are subject to a higher degree of risk since you are not backed by a bank or other financial institution, you also will need to supply your own trading software, which can run in the range of a few thousand to many thousands of dollars. If you are interested in trading stocks, day trading can be a great way to start.
To be a day trader, you have a variety of tools available to you. These traders are constantly watching the market trends every minute the market is open, and analyzing how to make the most money, while balancing risks each day.
For day trading, as a retail day trader, you must follow all necessary regulations. As the stock market is regulated by, FINRA, which is the Federal Industry Regulatory Authority, with the extreme risk that day trading exposes you to, it is necessary to properly understand these regulations. To understand the regulations you must first understand what a day trade is. If you fall under the definition it is crucial to follow the regulations.
Day trading, or swing trading, is defined as buying and selling the same penny stock during the same day. This will include any pre-market hours, during market hours, and after-market hours sales. If this occurs in one trading day, it is a day trade. Anything that falls outside of this is not a day trade and is not subjected to the same regulations. Be sure to carefully follow the regulations that exist for day trading.
9 Things You Need to Know to Day Trade
When you are day trading, it is very important that you know and understand the market. By having a solid grasp on the market, and knowing how the penny stocks you are looking at perform, you will be able to ensure that you are making the most of your day trading. Since there is a high risk in this investment portal, you don't want to get involved if you don't truly understand how it works, and you need to know the best trading strategies. These strategies are what are proven to make you the money you want.
Day Trade Penny Stocks
Penny stocks have the option to make the highest gain, with very high percentage yields in a very short amount of time. A penny stock is defined as any stock on the market that is $5 or less a share. Penny stocks are generally how day traders make the majority of their money, and with a penny stock you can limit what you are liable to lose.
Do Your Research
As with any venture you want to embark on, it is very important to have properly researched the market and the stocks that you are interested in. If you do not do proper research, you are risking losing your money and or your client's money. Fundamental and Technical analysis are the two primary ways to research markets. It is best to learn as much as you can about both of these.
Be Prepared to Be Stressed
If day trading was easy, everyone would do it. With risk comes stress, and you must prepare yourself for the stress. The stock market in general is stressful, think about current investments you have, how upset do you get when they lose value? You'll be dealing with this on a daily basis, get used to it! Practice good anti stress techniques to make sure that you are level headed.
Do NOT Depend on Luck
The stock market is not the casino; it is not a luck based game. It is not a game in general, but if you think you are going to slide in their and make money based off of a good guess, you are wrong. It may work once, and get your hopes up, and then you will lose more than you ever imagined. Luck and the stock market does not mix, follow what the research tells you.
Be Careful of your Emotion
If you're sitting on at your computer yelling at one of your 5 screens, there is an issue. Emotion, good or bad can cause a cloud in judgment. If you do well, and let your emotion get the best of you, you may make a bad decision and invest in something you don't want to. Or, if you are doing badly with one particular stock, your emotions may tell you to pull everything else. Don't let this get the best of you. Emotions can cost you so much money, beware of them.
Don't Burn Yourself Out
One of the earlier bullet points explained that day trading is stressful, in order to be successful, you don't want to burn yourself out. Instead of doing trading five days a week, look into four days, you can probably make just as much money if you plan it out right, and you'll be able to sit back and relax. Don't succumb to the pressure of online day trading by working too much. Four days a week will still provide you with a good living if it is done right.
Know When to Take a Loss – Be Smart With Your Money
Part of being a smart day trader is knowing when to take a loss. If you are losing money, it may be time to pull out for the day. Set risk reward parameters prior to entering any trade. These ratios are normally 4-1 risk reward ratio, whereas, if u risk $1 you try and make $4. It is important to use your stop-loss to prevent losing more money than you really need too. Proper planning with technical trading will prevent this.
Put Your Profits Elsewhere
A smart gambler always knows how much they are up, and doesn't spend that portion. You're not a gambler, but you should follow the same philosophy. Every month, take your profits and move them away from the account that you use to buy and sell stocks. Invest this money in a money market, a savings account, or a CD. These are all low risk options. You'll still have the money you always had, but your profits will be safely tucked away for a rainy day.
Never Focus on What you can Earn, Focus on What you can Lose
By understanding how much is at risk, you become a better trader. If you are constantly thinking about how much money you can make, you may make a bad decision. Always knowing how much money you can lose will keep you on your toes, and keep you mindful. Don't count your money before you've made it, limit your losses, and the money will follow. Trade the Market – Don't Trade the Money.
Stock Trading – Types of Orders
To make the most of your money, there are certain orders you can place for your stocks. By following the Stock Trading – Types of Orders, you can limit the amount of money that potentially could be lost at any one time. It is important to understand the stock trading – types of orders and know what you can do with your shares. Orders through the computer will help your daily selling
The first type of order is a limit order. With most online software, this is the default type of order. You can either set a limit for what you want to buy the stock at, or what you want to sell the stock at. Once you've reached that limit in either case, the activity will be completed for you, preventing a loss.
A market order is also known as a not held order. These orders execute at a specific time, they do not have any limitations as to the amount of money the stock is currently up or down. This is a risky strategy and one that most people should not try; it will not bring in the best returns.
A stop loss order sets an upper and lower limit for your stock. It will automatically open or close a market position by buying or selling a stock at that point. For people that aren't active with their accounts this is great. For day traders you can set a stop loss point, and once it gets to that point it will sell, you don't have to watch it every second. If the 30 day trend is telling you it hasn't gone past $4 a share, you may set a stop loss at $3.50 to sell, knowing that is the best you will get.
A trailing stop is a smart order; it will adjust the order based on the changes in the market price. As the market increases, the trailing stop increases also. So, if your prediction was off, and it went far above what you predicted, with a trailing stop it will keep setting limit as the stock increases in value. That way, if it starts going back down, your trailing stop will kick in and help you make the most money.
A market on close order or MOC is very easy to understand. You may want to set your day trades to do this at the end of the day if you don't get to them. Of course, since this simply tied to the market closing, you never know what your profits will be with an option like this. However, if you truly day trade, it will get rid of the stocks you didn't at the end of the day.
Knowing the different orders you can place will help you become a quality day trader. Using online software can provide you will many benefits that will increase your productivity and hopefully your profitability. By truly understanding how the orders work, you'll be able to place them on your stocks.
Since day traders make a lot of buys and sells on a daily basis, it is important to use technology to get the most out of it. If you get overwhelmed, the technology can help carry you through. By setting the right technologies to the right stock, you will never have to worry about your emotions getting the best of you. You'll always have a set plan for your stocks.
Using Technology for Day Trading
There is a lot of technology that will increase your ability to day trade, since this is such a fast moving, demanding industry; you need to have the latest technology to make the most out of your trading. The products for this industry are always changing; stay on top to have the best.
Many websites help narrow down stocks into a niche and wind up doing the work for you. Depending what you are looking for, these websites have a variety of inputs you can manipulate to get what you want, and the answers you need. Generally, you will see the ticker symbol, the name of the company and other examples of stock choices and how they behaved historically, a track record if you will. From there, you can see the other facts about the stock, and what the price and change has been.
Another great tool depending on the service you use for your online stock is a heat map. It generally does just what it says. The heat map breaks up stocks by their sector. It assigns them their area on that portion of the map depending on how much of the market share they own. Then, it assigns them a color. Red is bad, it means that they are losing money. Green means that they are gaining. As they decrease from green to red, the profit margin shrinks. This is a great visual tool to have for your day trading.
Aside from these tools, you also need to have the right equipment. It is important to have a very good office setup wherever you are. Day trading requires multiple monitors with multiple screens that hold the data. As you are trading, you can flip between screens so you never miss anything. Day traders also need quality computers that move quickly, and a great internet connection speed. You don't want to be caught with improper tools, just another way to lose money, be prepared, it helps.
Day Trading Risks
Many people are ready to speak out about the risks of day trading and already do. The U.S Securities and Exchange Commission has posted multiple warnings on the dangers of day trading. It is important to understand these before you jump into a career that involves day trading. A lot of money is at risk to be gained or lost.
Day traders often suffer financial losses in their first few months, and you need to be prepared for that. Some never make money. As with gambling, only risk money you can afford to lose. You don't want to use money that you would generally use the pay the bills, dip from your retirement, or take out a second mortgage on the house, you're just asking to lose money that you don't have.
It is also important to remember that you can be fooled. As a day trader, just because you see a "hot tip" on a website or the "Stock of the Day", it may not be that. Don't get trapped into false advertisement, and depend on what you see. Before you purchase a stock, you want to make sure that you have personally done the research to understand the investment that you are making, this way, if you lose money; you know that you did everything you could to succeed.
Rewards of Day Trading
Day trading isn't just a scary game, there are ways to make lots of money and be very successful. Day trading has become a career for many Americans or a successful hobby when they retire. If you have the funds to start out day trading, you can potentially make a lot of money. By using money that you are ok losing, you'll have the stress off of you and hopefully be able to make some profit.
Being a day trader has many rewards. If you are within the profit margin, you have a lot of wiggle room. You can work a four day work week, giving you more time to travel and enjoy your family. You can also work from any location, an office, your basement, in a hotel room in Italy, wherever you have internet, computers, and a cell phone. The flexibility of this career makes a lot of people take interest in it.
Starting with even just a one percent profit margin each day, a day trader can turn that into money. Some day traders make upwards of $200,000 a year, but these people are far the majority. Your average day trader at home is probably making around $30,000, this may not be enough to live off of, but would be a great supplemental income. There are ways to make money even from home being a day trader; it just takes a lot of hard work and dedication. If you are up for the challenge and up for the stress, you can become a successful day trader with the right tools.
Conclusion
Day trading is not a career for every one; it brings to life high stress situations, and makes people work hard. Day trading was created for people to make quick money, while generally this isn't the case; some people have done it time and time again. Before you get into day trading, it is necessary to understand how it works, and what you need.
Be sure if you are day trading that you are following the proper steps. There are a lot of tips for day traders that can help you succeed. By consistently doing the smart thing, you give yourself the best chance of making money. It's like gambling, there is more skill in it if you develop your unique methodology.
Following tips like not letting your emotions get the best of you, and realizing you are bound to lose money will help you be the best day trader you can be. Living with your heart on your sleeve will destroy you, it is necessary to keep a cool head, and be prepared to lose money, that is why as a day trader you should never use money that you need.
If you're looking for an exciting career where there is unlimited growth potential, check out day trading. With the proper tools, the proper research, the right equipment, and the dedication you can turn into a successful day trader. Be sure to fully understand the stock market before you jump in it and start investing. This is a great new career option for anyone interested; take a look at what it can do for you.
At Penny Payday we offer the building blocks to successful trading by identifying penny stocks that are under promotion and are likely to have upside momentum and volatility. This is an important piece of the puzzle and our website is one of the few who incorporate this into our trading strategy. We welcome you to our family of traders.
Article Source:
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