Day trading is the buying and selling of financial instruments within a single trading day. The gains that can be made from day trading are why many people consider doing this. However, there are certain points that you need to consider when looking at day trading for the first time.
Choosing A Market
Day trading is an umbrella term for the type of trading you are going to complete and it is not limited to a single market. This is why you need to consider the market that you want to trade in before you start. Choosing a market will come down to what you want to trade, what you can afford to trade and how much time you have to trade. You do not have to limit yourself to a market with a fixed close.
The most popular choice for day traders is the stock market because of the large variety of stocks that you can trade in a day. However, you can also choose to trade on the forex market or on the future market. It is important to note that these latter markets do not have set close times like the stock market.
Deciding When To Day Trade
Many beginners make the mistake of assuming that day traders need to trade all day. This is not true, but you will need to be consistent in your trading times which is why you have to decide when you are going to trade. One of the ways to create this consistency in trading is to trade in the same hours each day. These hours should be ones then there is volatility and liquidity in your chosen market.
If you are going to trade on the futures and stock market, you should look at trading early in the day or just before the close of the market. The hours that the markets run can vary so you need to do some research on the market that you choose. Trading on the forex market is different because it is open 24 hours. To keep things simple, you should focus on the hours of a specific currency pair or exchange to ensure that you get the liquidity and volatility that you need.
Manage Your Day Trading Risks
To be a successful trader, you need to correctly manage the risks of your day trading account. To do this, you need to approach your trading as a business and protect your capital investment above everything else. Risk management is something that you need to work on your day trading strategy and something that must be done before each trade. Learn more about managing your risk at the Trading Review website.
To manage your risks, you need to set your limits and put measures in place to prevent any worst case scenarios. Stops and limits are the best risk management tools to use and they are an essential part of your trading toolbox. Learn how these tools work and how you can use them to your advantage before you start trading.
Know Your Win-Loss And Risk-Reward Ratios
You will often hear that successful day traders will quickly cut losing trades and will allow their winning trades to run. This is important in day trading and in all other forms of trading. When you do this, you can have fewer winning trades and more losing trades but still make a profit. You do not always need to be right about your trades and there are no traders who are right all of the time.
You need to be able to acknowledge when you are wrong and take the necessary steps to cut your losses. This is why you need to have win-loss and risk-reward ratios. You should look at a risk-reward ratio of 1:2 because this will ensure that you double your money when you have a winning trade.