You can make quite a lot of money on day trading. You can even lose everything. In the fast-paced world of day trading, the people who thrive as traders and build wealth are the ones who have prepared carefully, done their research, only taken risks they were fully aware of, and stayed calm during tough times. . .
Day trading successfully requires a little little bit of industry knowledge and quite a lot of wisdom and perspective. Here’s what you need to know about day trading the right way.
Prepare yourself financially
To start day trading, you need money. It takes money to make money, so you need start-up capital for your day trading dreams.
The money you use for day trading should not be in your long-term savings. Your retirement fund should not be at stake, even if you believe that you have an opportunity to make quite a lot of money. And you will need one extra cash stash — an emergency fund.
You have a lot to find out about trading and investing before getting into day trading (and we’ll talk more about that in a moment). But no matter how much you study, you’ll have bad days as a day trader. You will lose money some days, and even your successful bets can create a tough time while you wait for the fruits of your decisions.
You will need money to survive times like this. You should know that you can still support yourself and your family even when something goes wrong on a certain day or during a certain week — or even month. Just like everybody else, day traders are in need emergency fund. And day traders need more, because their earnings are less predictable.
Understand your skills
Day traders take multiple trades — that is the true definition of a day trader! They must make quick decisions and evaluate complicated situations that the average investor does not must deal with. And this means that day traders need to know far more about what they’re doing than the average investor does.
You should read up on investment strategies and the types of investments you focus on. Plus, you should develop a trading strategy and stick to it — one that will help you make rational decisions even when things get crazy.
Practice your strategy with investment simulation program, which lets you “invest” fake money and test your trading acumen. Much better to learn with fake money.
Evaluate your risk
As a day trader, you’ll live with lots of risks. Opportunities for giant profits tend to come with great risk, and day traders may expose themselves to risk by using advanced strategies to short-sell, trade on margin, or invest in volatile stocks such as penny stocks.
You can and should take risks, but you also need to be fully aware of the risks you’re taking. If you day trading cryptocurrencies or penny stocks, you should know what that means for your emergency fund. Be aware of how risk can add up too — for example, if you take a loss, you may not be capable to trade on as much margin (and may get a call from the risk assessment team at your brokerage).
Savvy day traders take risks, but they all the time know the risk they’re taking. Manage your risk with stop-loss orders and calculate them carefully.
Keep your cool
Day trading is very stressful. It’s easy to overreact to big wins or big losses. However, the best day traders are able to stay calm.
You need to make rational decisions and stick to your strategy. Let your rules, not your emotions, be your guide. And try to keep your emotions and your stress levels down too – you could try meditation or simply know when to walk away. Be aware of your thoughts and think on purpose. You can do this — you’re a day trader!
