When it comes to stock trading, everyone is tempted to make their bids due to the high returns it lures the investor with. Your desired investment can turn into your worst nightmare if you are not adept with the right strategies to survive the market. With the COVID-19 Pandemic that continues to spread all over the globe, people are staying in their homes where some of them are working from home, while many others had lost their jobs and feel depressed about their finances. This free time that many of us have these days, can be a good opportunity to learn about the stock market, explore day trading and finance management for ourselves.
Investing in the stock market is one of the best ways to create financial wealth and financial freedom. Before delving deep into the strategies, it’s important to understand which qualities should you imbibe in yourself to become a successful day trader:
- Forward-thinking skills
- Critical thinking
If you are a newbie in the market and looking to bag in some profits in stock day trading, then educational materials provided by your broker, such as this example from easyMarkets, are important for your learning process. We’ve gathered a few tips that you should be kept handy to stay guarded in the online stock trading market:
Knowledge is Your Power
It is important to at least have basic knowledge regarding the market. As a day trader, you must also be updated with the happenings and changes of the stock market and other financial movements to make well-informed decisions. Do your homework; take references from articles, and stock market news. Also, it is advised that you also make a list of the desired stocks you want to invest in and keep track of the market regarding those stocks.
Set Aside Funds
You need to learn the art of segregating your funds accordingly. Initially, you need to assess how much funds are you willing to take a risk on. According to market trends, many successful day traders only take 1% to 2% risk per trade. For instance, if you are trading with $40,000 and willing to take a 0.5% risk on each trade, then your loss per trade would be $200. It is advised to set aside the surplus amount that you can trade.
Begin with Small
It is quite evident that you can get taken away by the higher returns of the market tempting you to invest more, But, if you are looking for long term gain with a minimum loss, it is advised to focus on one or two stock at the beginning, not more than that. When you are trading with minimum stock the tracking and opportunity exploration process becomes much easier.
Fractional shares are increasingly becoming a popular trend in the stock market that lets you specify a smaller amount of funds you want to invest. For instance, if Samsung shares are at $250 and you are willing to buy only $50, brokers can let you purchase one-fifth of the share as per your wish.
Stay Away from Penny Stocks
It is good to look out for deals and low prices, but it is advised to steer clear from penny stocks. These stocks are small company’s stock that generally trades in less than $5 per share. These stocks are not liquid and probabilities for getting a jackpot are also scarce. There are chances that stocks trading below $5 per share are de-listed from major stock exchanges making them tradable over the counter (OTC). Until you see some potential opportunity to grab on, stay away from penny stocks.
Limit Orders to Cut Losses
It is essential to determine which sort of order you are willing to enter and exit trades. There are two major options: market order and a limit order. When you shift to a market order, it will be executed at the best possible price available in real-time, thereby decreasing or removing the price guarantee. A limit order, on the other hand, guarantees you the price without execution. It provides you with the opportunity to trade with precision, where you can set prices. Experienced day traders often use other prominent strategies to hedge. Hence, it is advised to incline more towards limit orders than the market orders.
Foresee Realistic Profits
Not all the strategies and movements need to bring you profit. Most successful traders only receive 50-60% profits on their trade. However, it is important to make more on the profits than lose on the losses. Make sure to balance the risk when you are engaging in day trading. The risk on each trade must be specified to a certain percentage of your account. You must also be thorough with the entry and exit methods to come out in a profitable situation. You must foresee your profits beforehand, but it is important to keep realistic so that you are not drenched in the losses.
The Bottom Line
Day trading in stock is a tempting invitation, but it can turn into a disaster if you are not playing safely in this lucrative game. If you are playing in the online stock trading market, it is essential to equip yourself with day trading strategies to capitalize on frequent and small price fluctuation. An effective base of strategies depends on a thorough knowledge of the market and an in-depth analysis of utilizing charts, patterns, indicators, etc.
Another important factor to consider while engaging in stock day trading is to keep it as simple as possible. Do not try to experiment with your moves or strategies aiming to earn higher at the beginning.
The above mentioned were some of the effective day trading strategies for stock that you can use while engaging in the market. From brimming yourself with the knowledge to smartly setting aside time and funds, you need to play it safe in day trading for long term sustainability.