How To Be an Effective Day Trader

Day trading involves buying and selling different financial instruments such as stocks, currencies, options, and futures. Earning money through day trading happens when you make a profit from the difference between the selling price and the amount you bought it for. The reason it’s called day trading is because the positions are rarely held for more than a day, or when the market is closed. At first, the only day traders were those employed in banks and other financial companies because they were the only ones with access to the market data and exchange rates. Today, however, individual traders can now access the same data and exchanges through the Internet, and can make the same trades at lower costs.

Here is how you can augment your income and become an effective day trader.

1. Study the market and do not trade unless you have a very basic knowledge of technical analysis and fundamental analysis, and how these are related to the companies that you’ll be buying or selling.
2. Make an effort to understand the terminology and methods of trading before you look at blogs and forums. You won’t be able to understand the tips and advice they’re sharing unless you understand the terms, nor can you ask any intelligent and relevant questions.
3. Stocks are more unpredictable than companies, so never buy them. As much as possible, buy and sell companies only.
4. Before buying into a company, do your research on its history and reputation.
5. The saying “buy on the rumor, sell on the news” often holds true when it comes to day trading. This means that if you already like the company you want to buy into, and rumors about them seem to be true, then it’s a good idea to buy on the rumor, and sell when the news makes a timely prediction.
6. Just as apt is the saying “the trend is your friend.” What does this mean? When a stock is reaching new highs each day, it will keep on climbing up until it starts going down or when it starts getting daily lows. When a stock goes down, it will keep depreciating until the reverse happens. A good time to buy into a company is 20% into the upward cycle. That way you’ll still profit a lot while taking minimal risks.
7. Create rules for yourself when it comes to trading—do not overtrade and do not be too greedy. For instance, if your goal is to earn $500 per day via day trading, then stop once you’ve reached your goal and enjoy the fact that you have made a profit.
8. In the same way, don’t get greedy and think that you can defeat the market. Good day traders usually lock in profits when they have had a 1/8 to 2 point gain or a 7-12% gain. Make a reasonable limit for yourself and stick to it; otherwise, you could get blinded by greed and end up making bad investment decisions.