Effective Strategy to Get Started With Cryptocurrency Trading
Day trading can be a profitable game, taking advantage of a small price movement to buy and sell a financial instrument on the same day or multiple times in a day. But it can also be a dangerous game for people who are new to it or don't stick to a well thought out method. Let's take a look at some general day trading principles and common day trading strategies, moving from the basic tips you need to know to advanced strategies that can help you learn how to day trade, such as advanced professional strategies. Below, we'll take a look at some general day trading principles and then proceed to decide when to trade, common day trading strategies, key charts and patterns, and how to limit losses.
1. Knowledge is the Power
In addition to knowledge of basic trading procedures, day traders will have the latest stock market news and events affecting stocks (Fed's interest rate plans, economic outlook, etc.)
Make a wish list for the stocks you want to trade and familiarize yourself with the selected companies and the general markets. Browse business news and visit trusted financial sites.
2. Allocate Funds
Evaluate how much capital you are willing to risk on each trade. Many successful day traders risk less than 1% to 2% of their accounts per trade. If you have a $40,000 trading account and are willing to risk 0.5% of your capital on each trade, your maximum loss per trade is $200. Reserve excess funds that you can trade and are prepared to lose. Remember, it may or may not be.
3. Set aside time too
One of the important elements for day trading is to take time off. That's why it's called day trading. In fact, you'll have to give up most of the day. If your free time is limited, don't think about it. The process requires a trader to monitor the markets and spot opportunities that may arise anytime during trading hours. Acting fast is key.
4. Start with Small Quantity
As a beginner, focus on no more than one to two stocks during a session. With just a few stocks, it's easier to track and find opportunities. Recently, it has become increasingly common to be able to trade fractional shares so you can specify specific, smaller dollar amounts you want to invest.
This means that if Amazon shares are trading at $3,400, many brokers will allow you to buy a fractional share for up to $25, or less than 1% of a full Amazon share.
5. Avoid Penny Stocks
You're probably looking for deals and low prices but stay away from penny stocks. These stocks are often illiquid and the chances of hitting a jackpot are often dismal.
Many stocks trading under $5 per share are issued from major exchanges and can only be traded over-the-counter (OTC). Stay away from these unless you see a real opportunity and do your research.
6. The Time of These Transactions
Many orders placed by investors and traders begin to be executed as soon as the markets open in the morning, which adds to the price volatility. An experienced player can recognize the patterns and choose the appropriate one to make a profit. But for beginners, it may be better to just read the market without making any moves for the first 15 to 20 minutes.
The mid hours are generally less volatile and then the movement towards the closing bell starts to rise again. While rush hour offers opportunities, it's safer for beginners to avoid them in the first place.
7. Cut Losses with Limit Orders
Decide what kind of orders you will use to enter and exit trades. Will you use market orders or limit orders? When you place a market order, it is executed at the best price currently available. Therefore, there is no price guarantee.
A limit order, meanwhile, guarantees price, but not execution. Limit orders help you trade more precisely, where you set your price (not realistic but workable) for both buy and sell. More sophisticated and experienced day traders can also use the use options strategies to hedge their positions.
8. Be Realistic About Profits
A strategy doesn't always have to win to be profitable. Many traders only earn 50% to 60% of their trades. However, they gain more from their winners than they lose from their losers. Make sure that the risk in each transaction is limited to a certain percentage of the account and that the entry and exit methods are clearly defined and written.
9. Keep Calm
There are times when the stock markets test your nerves. As a day trader, you need to learn to keep greed, hope and fear at bay. Decisions should be governed by logic, not emotions.
10. Stick to the Plan
Successful traders must act fast, but they do not need to think fast. Why? Because they have already developed a trading strategy and the discipline to stick to that strategy. It's important to follow your formula closely rather than chasing profits. Don't let your emotions take over you and abandon your strategy. There is a mantra among day traders: "Plan your trade and trade your plan." Before we get into some of the ins and outs of day trading, let's look at some of the reasons why day trading can be so difficult.
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