How to be a More Successful Day Trader
Day trading promises lucrative returns and job flexibility, but the honest reality is that most people try it fail. Why? It’s usually because they didn’t have a plan for how to be successful.
Five Tips for Day Trading Success
Each year, thousands of people give day trading a shot. They read an article about a trader who struck it rich with very little experience and assume they can do the same.
Unfortunately, it isn’t that easy. Although there’s a potential for huge returns — especially in the current market — you can’t achieve success if you don’t have a basic knowledge of what you’re doing.
You have to master an array of technical topics before you start, of course, but it’s just as necessary to both use daily forex signals and grasp the psychological aspect of the matter. Here are five tips regarding best practices you should study.
- Have a Strategy
Becoming a day trader without a trading plan is like a blind person who tries to cross six lanes of traffic without any strategy for navigation. Neither scenario is apt to end well.
Although your strategy will improve over time, you have to start somewhere. Every strategy is different, but at a bare minimum, yours should list your objectives, when and how you will enter trades, when you will get out of a losing trade, when you will cash in on winning trades, and how you will determine your position size.
- Practice Mindfulness
There’s something to be said for technical analysis of stocks and studying the patterns and principles, but don’t underrate the psychological aspect of day trading. In particular, you should teach yourself to become more mindful.
“Mindfulness is a form of meditation,” NetPicks explains. “It’s all about being in the moment and totally aware of what’s going on around you. Even if you were to take away all of the supposed health benefits to meditation, being able to focus on something, without already having a bias, is surely a skill that any trader would wish to have.”
- Use Limit Orders
One of the biggest challenges beginners have with day trading is knowing when to trade a stock in order to limit a loss or maximize a gain. Many pull out too quickly or don’t move on a trade soon enough.
There’s no perfect formula for knowing the right time to make a trade, but using limit orders will help you minimize risk and enjoy steady returns.
- Avoid Chasing Losses
Psychologically, losses can be tough. When you lose money on a trade, your initial impulse may be to chase after the loss and make up for it. Unfortunately, chasing losses usually ends up digging an even bigger hole.
Successful day traders know when to accept a setback and move on. Even if you come out on top the first few times you chase a loss, sooner or later you’ll do yourself in.
- Never Risk More Than 2 Percent
As a rule, you should never risk more than 2 percent of your portfolio on a single trade. Thus, if you have $10,000 in an account, the maximum you ought to invest in a trade would be $200. This might sound pretty conservative, but it’s the best way to avoid burning yourself.
What’s Your Game Plan?
Day trading isn’t an activity to enter blindly without developing a strategy first. In order to create a sound strategy that gives you a good shot at being successful, you have to understand some of the basics and what it takes to be aggressive, yet disciplined.
The five tips cited in this article should give you a strong foundation upon which you may continue to prepare for a steady future in day trading.