Everyone who has had some contact with day-trade knows that it is an activity that can bring high earnings. But high earnings mean higher risks. A day-trader is a professional who tries to make a salary from the Stock Market.
What about you? Are your prepared to be a day trader? Read this article to understand what you need to get started!
Understanding day-trade
Day-trade is a type of financial market transaction in which the opening and closing of the transaction takes place on the same day. You buy now and zero it in 5 minutes, or start the day short and zero by late afternoon. It is highly speculative. The goal is to take advantage of small market movements.
Unlike the mentality of an investor, a trader is not concerned with the value of an asset over time. The essential information for day-traders is knowing the price and what they are doing with it. Whether the company that he is trading has the potential to grow in 5 years or not, for example, is of secondary importance.
This is not to say that a day trader does not use fundamentals of economy to operate, but the decision-making process occurs within a short space of time. In a short time an asset can fall, even though the long-term expectation is high. Notice the difference? This is where speculation comes in.
In day-trade, the important thing is to be at the right end. When the market falls, you need to already be short. When the market rises, you need to already be long. Predict if the market will rise or fall? Impossible to predict — only God knows. A day-trader works with probabilities and risk management.
How do I Know If I Have a Profile for This?
Nobody is born ready for the market. The theories that combine psychology and economics show that the human being is born prepared to win, but not to lose, but in day-trade, losing is part of the process. In practice, the aim is to win more than lose, but always winning is something that does not happen.
So the takeaway message is that it is a learning process that takes some time.
In other words, nobody has a real profile for the market, but it can be shaped over time. Do you want to be a trader? Then build the skills below:
Know How to Lose and Stop
To know how to lose is one of the hardest behaviors to learn because everybody is born ready to win. But are you prepared to lose part of your capital without throwing in the towel? This is a real challenge. In day-trade, losses are constant, and the name of the game is the trading result as a whole and not of a single trade.
To understand this in theory is easy, but in practice is an entirely different story. What about when you pass your loss limit for a day? Are you able to stop and know that the market is there every day and that is why tomorrow can be better than today? That is the classical question for which only you will have the answer.
Don’t “Lose your Head”
To keep “your wits about you” is fundamental in day-trade. The losses will only get bigger if you don’t follow your strategy and decide to go all-in. The market punishes severely those who go for all or nothing.
That is why it is important to plan the trade well and carry out what you planned. Many traders commit a serious mistake because they don’t follow their trade plan. Many move the stop, zero before the target is reached, and because of that don’t follow through with their objective, which influences the final result.
If in the middle of trading you realize that you have been led down a rabbit hole and begin trading without any criteria, step away from the screen and go do anything else but trade. A mindset ready for the market produces good fruit, but a weakened mindset is a losing machine.
What are the Advantages of Being a Day Trader
Day trading can reach levels that are much greater than standard investments — for both winning and losing. Reach 50% on the capital in one day, for example. Can any financial product deliver that? But speculation can. Once again: for both winning and losing. Money, flexibility of time, and freedom are words that bring sparkle to the eyes. But some precautions must be taken.
Significant Financial Gains
The aggressiveness of the amounts that trading can bring in is something that calls a lot of attention. To earn US$ 5,000 in one day, for example. In what profession is that possible? Few that you know and certainly not all of them do.
On the market, most traders lose, but the consistent winners reach amounts that are really very interesting. With the advent of the Internet and market professors, what before was considered impossible, today is real. Surely you know at least one person who lives today from trading on the market.
On the other hand, not knowing what you are doing can generate huge losses. You most likely also know someone who lost money on the Stock Market. But don’t forget that when you are a trader, you are responsible for your own story.
Flexible Working Schedule
The result on the financial market can be done in seconds, minutes, or hours. You don’t have to stay in front of the screen from 9 to 6. Depending on your strategy, that may be necessary, but the fact is that you are the one deciding your schedule on the financial market depending on your trading needs.
There are those who trade only in the morning, which is when there is more liquidity. Obviously this is all relative. It does not mean that as soon as you start trading you will right away reach the result before 10 AM and then you can go back to sleep. In the future, it may be the case, but in the beginning this is only a distant dream. Take the steps needed to reach this.
Freedom
This is another one of those beautiful words that everyone loves to repeat. Certainly day trading gives you freedom to not work on a certain day or to have lunch at the mall with your children after closing a trade. But what is very good, also has its price. No one is a good trader from day to night.
And beware about the other side of the coin: don’t turn into a slave of trading. Learn how to make a profession out of this that will give you the possibility to take advantage of its flexible working hours. There is no point in leaving a “common” profession to then be in front of the computer 24 hours a day. Be careful with becoming addicted.
I Want to Start Day Trading, What Should I Do?
To start in the world of day trading, in addition to the knowledge you will need, you are going to have to have access to some basic tools to help you. You are a company now! In your life as a trader, you are going to be the CEO, Manager, Analyst, Assistant, and Executor, so the result depends on good organization.
Technologies Needed
The first point is to have access to a professional platform that has the resources for day-trade. Without this, it is almost impossible to operate this asset. A platform that is fast, agile, with features that help you scan and send orders to the Stock Market.
After testing the market in simulation accounts, open an account with a broker. Choose the best broker who is going to meet your needs.
You are going to need a good computer and a good Internet connection. You are entering into a market to compete with professionals who have the best tools at hands. The so-called “cutting corners” is something that cannot exist in this market.
Choise of Asset
For day trading, the choice has to be based on two aspects: liquidity and volatility. An asset with plenty of trades and offerings on the book is a liquid asset. A volatile asset is one that moves a lot during the day.
Choice of Technique
The methodologies indicated for day trading are reading the order flow and graph analysis. You can choose one of them or a mixture of both techniques to form your trading strategy. Study and find out what fits your profile best.
Day trading is a fascinating world, and to start getting into it, pay attention to the tips in this article. Read and read again if you need to! Keep in mind that to begin in day-trade is not a big problem. What is the hardest is to stay in it.
In this article we talk about the first steps that a day trader should be aware of. Keep studying and read more about how to become a good day-trader!
Written by Nelogica
