10 Day Trading Strategies for Beginners
In this section we will give you a very good overview of what is Day Trading and also how you can successfully apply some day trading strategies online if you are a beginners.
What is day trading?
Day Trading means that you are holding a market position only for a short period of time. Usually the day trader opens and closes a position on the same day and this is why it is called in this way. It doesn’t have to be however a single day the position can also be hold for longer but normally it is within a single day. The position is long (buying outright) or short (borrowing shares than offering to sell at a certain price). The aim of day trading online is to make the most of the volatility that affects financial assets during the day. It is a strategy that tend to reduce the ‘overnight risk’ which can happen if events (like some bad earnings reports) that happen when the markets are closed.
Although this is now a pretty standardised way of trading online, this concept got a bad reputation when back in 1990’s many beginners traders started to jump on the new online trading platforms without using the correct trading strategies. Many went with the idea that they could earn some easy money by trading in this way without the knowledge and effort and got burned badly. Taking aside that, day trading online is not a complicated strategy but there are some simple rule that will help to anticipate market moves and also covering if things will not go in the right decision. Below we will offer the top 10 strategies on how to day trade online for beginners:
1 – Check when the supply and demand are very imbalanced and set this as your entry point: you have to think that the financial markets are similar to everything else in live. If the supply is nearly to the end and buyers are still willing to buy the price will increase. If there is more supply but not willing buyers than the price will go down. It is important to identify those turning points of a given financial asset on a price chart and also look at historical example to determine what is the situation of that particular instrument.
2 – Always set a price target before starting to trade online: If you decide to buy a long position it is very important to decide in advance how much profit will be acceptable to close and also what is the stop-loss level that you are decide to set if that trade goes against you. Once done that make sure you stick by your decision. This will benefit you in two ways: it will limit your potential loss if things goes wrong and ensure you will not get overly greedy if a price goes in your direction. This concept is always true apart if you are in a strong market: in this case it is acceptable to set a new profit goal and stop-loss level but only if your initial target has been completed.
3 – The risk-reward ratio should be at least 3:1 when you decide your targets: One of the key things beginners traders has to learn is to understand the right risk-reward ratio. This ensure that you ‘lose small and win big’ and it will make you come in profit even if you have lost most of your trades. As you improve your experience you can even get to a risk-reward ratio of 5:1 or even higher if realistic.
4 – Be always a patient trader: the best online day traders do not even trade every day. They might be looking for opportunities but if they do not see a clear entry point they will not make a trade that day. This is because it will work much better in the long run to wait rather than go against your own best judgment just because you are impatient to ‘just do something’. Always remember to plan your trades and then trade your plan.
5 – Be always a disciplined trader: again this is a very similar concept to the one we have just seen. You need to set a trading plan and once done you have to stick with it. One of the most risky things if you are trading online on your own is that impulsive behaviour can take over. Being greedy might result in you are holding a position for too long and fear can make you close the deal too soon. It is important to remember that it is not about getting rich on a single trade but it is the volume of successful trades that will make the difference in the long run.
6 – Don’t get stuck when you have to push the ‘order’ button: something we have seen with lots of beginners is that they often get a ‘paralysis by analysis’. They keep watching the candles and the Level 2 columns on the screen and their over-analysis means that they can’t act quickly enough when an opportunity arises. If you follow your plan placing an order shouldn’t require too much thinking. In fact should be automatic as you have set up the stops and if things go wrong you can go out without causing too much damage.
7 – Only day trade online the money that you can afford to lose: You have to select a ‘little bucket’ of risk capital that you can day trade online. Remember you should consider those as ‘lost’ and if this cause you some concerns it means you are probably day trading online with a too high amount and you should reduce your bankroll.
8 – Never risk too much money on a single trade: you need to set a percentage of your total day trading budget which should be from 2% to 10% depending on the total amount that you will invest. The size of your position should never excess that. The reason is that the risk will be too high and you might also lose an even better opportunity in the market.
9 – Don’t day trading online only stocks: there are many financial assets that have very good volatility and liquidity so you shouldn’t only trade stocks. Forex, futures and options are all asset classes that should be carefully considered. Normally at least one of those will have good opportunity when the stock market doesn’t seem to going nowhere.
10 – Don’t second-guess yourself and learn from experience: if you think you are going to win every trade you make than you are in the wrong path. By nature every day trader online has losses so you shouldn’t be too harsh on yourself when the occasional trade doesn’t go your way. Do however check that you are following your established online day trading rules and didn’t get in or out at the wrong time vs your own strategy.