Trading Daily Tips

It's easy to become enchanted by the idea of turning quick profits in the stock market, but day trading makes nearly no one rich — in fact, many people are more likely to lose money.

Conversely, investors who buy and hold low-cost index funds that track a broad market index like the S&P 500 could see higher returns over a long period.

However, if you're still keen to try your hand at day trading, it's important to follow some rules so you don’t get in over your head. Here's how to approach day trading in the safest way possible.

Tips to begin day trading

There are countless tips and tricks for maximizing your day-trading profits, but these three are the most important for managing the substantial risks inherent to day trading:

1. Trade with money you can afford to lose. It's paramount to set aside a certain amount of money for day trading. Don’t trade more than that amount or use the mortgage or rent money. Why? It’s possible you will lose it.

2. Start small. Especially as you begin, you will make mistakes and lose money day trading. Keep an especially tight rein on losses until you gain some experience.

3. Don’t quit your day job. You may have a run of luck, especially if the market's in a sustained bull run. But you’ll need to see how your trading strategy performs when the market gets rough, especially during a recession, before expanding your efforts. Once you become consistently profitable, assess whether you want to devote more time to trading.

Learn Day Trading Strategies

Day trading (also known as intraday trading or short-term trading) is one of the most misunderstood trading techniques.

The fast pace of moving investment positions within a single trading day generates a perception that day trading is riskier or more volatile than other types of trading.

Let's put this to the test with an overview of some helpful strategic trading tips trading strategies for beginners and the experienced alike, as well as by discussing how day trading really works.

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Five Day's Trading Tips for Beginners

1. Find favorable entry points

Look for scenarios where supply and demand are drastically out of balance and use these as entry points.

2. Set day trading price targets

All traders, no matter their expertise level should set day trading price targets before entering the market. If buying a long position, traders should decide in advance how much profit is acceptable as well as a stop-loss level if the trade turns against them.

3. Be patient

Day trading requires patience, so be a patient trader. Paradoxical though it may seem, successful day traders often don't trade every day or all day.

4. Budget wisely

Don’t day trade with money that is needed or set aside to meet a goal. Knowledgeable traders have a small bucket of short-term risk capital and a larger bucket of investment capital they’re saving for retirement or another long-term goal.

5. Explore options beyond trading stocks

Trading stocks is where many day traders start, but that doesn’t mean day trading is limited to just trading stocks. Forex, futures and options are three asset classes that display volatility and liquidity just like stocks, making them ideal for day trading.

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How Much Risk Is Involved in Day Trading?

According to Online Trading Academy, the fact that day trading positions are processed in a single day minimizes risk potential.

Because day traders don’t hold their positions overnight, they avoid the possibility of a surprise in an overseas market, unfavorable economic news or an earnings report that comes out after the markets are closed. Even though after hours trading is available for many securities, the market is thin and it’s likely the position will gap down (open at a dramatically lower price) the next day after a negative overnight event.

In addition, day trading tends to reduce, not increase, market volatility. Day traders are typically looking for their opportunities in small price movements up or down. Their daily trades provide liquidity which keeps markets running smoothly, as compared to lightly traded markets that are subject to dramatic price swings.

Day trading got a bad reputation in the 1990s when many beginners began to day trade, jumping onto the new online trading platforms without applying tested stock trading strategies.

Yet day trading is not all that complicated once you learn a rules-based strategy for anticipating market moves, such as that taught at Online Trading Academy.

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Best Day Trading Strategies

Day traders are investors who seek higher profits from the stock market in exchange for a much greater risk of loss. These investors believe that if they use the right day-trading strategies, small daily wins will add up to big long-term profits.

Here are some tips for anyone interested in trying their hand and the high-risk, high-stakes world of day trading. You’ll learn about five day-trading strategies that could work with a whole lot of work and a little bit of luck. You can try them out if you’re looking to make cash buying and selling stocks within one day — but don’t expect to succeed right away.

Momentum Trading

With a momentum strategy, an investor jumps on a stock whose price is moving up.

Pullback Trading Strategy

The first step in the pullback strategy is to look for a stock or ETF with an established trend. Next, monitor the trend until there’s a price decline from the trend. If the established trend is upward, then the downward price movement — or pullback — is an entry point for the day trader to buy.

News Trading

You might already know that stocks react quickly to news events. One lousy earnings report can cause a stock price to fall. Something like FDA approval for a new drug, on the other hand, might cause a stock to take off. By keeping an eye on the business news, day traders can capitalize on the popular daily stories.

Scalping Strategy

The philosophy behind a scalping strategy is that small wins can add up to a lot of money at the end of the day. The scalper sets buy and sell targets and sticks to these predetermined levels. The scalping strategy is fast. It’s not uncommon for several trades to be made within a few seconds.

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