Day trading is different and riskier than investing in the regular stock market as it involves buying and selling stocks on the same day.
It is paramount for a trader to understand the fundamental rules of such trading to mitigate losses. Individuals should always consider investments in only the amount they could afford to lose and not face any financial issues ahead.
Here are mentioned
Some trading tips to guide investors while they are day trading -
1. Invest in Liquid Shares
Day trading deals with squaring open positions before the trading session expires. Henceforth, it is strongly advised to invest in two or three large-cap shares that turn out to be highly liquid.
Investing in mid-size or small-caps can lead the investor to have to hold these shares due to low trading volumes.
2. Research The Desired Stocks Thoroughly
Investors must have at least 10 shares in their desired lists that they are looking forward to investing in, followed by meticulous research.
Keeping an eye out for corporate events, including mergers, bonus dates, stock splits, and dividend payments accompanied by other technicalities must be checked. The internet can be a useful tool for finding resistance and support levels.
3. Mark Profits on a Target
One of the leading causes of failure arises from fear or greed. Investors must not only cut their losses but also mark their profits on hitting the targeted price.
In case the trader presumes the stock could potentially rise in price, the stop loss trigger must be tweaked to match the new expected profit range.
4. Check The Entry and Target Prices
Determining the entry-level and target price must be ensured before buying that order. After investing in the stock, a trader's mindset can be mercurial, and a change of thoughts is common.
Hence, a trader may wish to sell that stock despite a diminutive increase in profit level. This could lead to the loss of opportunity to utilize higher gains when profit increases.
5. Utilize Stop Profit
Stop-loss is a trigger in trading stocks which automatically sells off securities in case they descend beyond a certain value.
This limits the potential loss for investors in case the stock prices fall. For investors indulged in short-selling, stop loss takes-the-edge-off of loss in case the price escalates beyond their anticipations.
6. Don't be an Investor
Day trading and investing both require individuals to buy shares. However, factors are different for both these strategies.
One deals with fundamentals while the latter takes into account the technicalities. Day traders take delivery of shares when the target price is not met.
The traders then wait for the price to recover to reclaim their money. This is not advised as the stock might not be worth the investment, considering it was bought for a shorter duration.
7. Traverse With the Market
There are times when all technical factors indicate that the market shall be hot and on the rise, however, a descend might still happen.
Such factors don't provide any guarantee and hence can't be relied upon. If the market doesn't go as a trader had anticipated, one must exit their current position to avoid heavy losses.
Day trading provides greater leverage, thereby providing decent returns in one day. Being content is crucial as it is very easy for a trader to be driven towards huge stock returns and make reckless decisions. Markets are volatile and can encourage beginners to invest large sums, exposing them to a higher risk of losses.
8. Invest Small Initially
Beginners often get carried away once they earn some profits during day trading. However, the volatility of markets and trend unpredictability is what causes traders to incur heavy losses.
Hence, the main idea here is to invest smaller sums that a trader can afford to lose without financial difficulties. Markets can often go from 0 to 100 or vice-versa within a matter of seconds.
9. Buy Liquid Stocks After Proper Research
It is advisory to know the basics of the stock market, and the fundamentals and technicalities before jumping into a trade.
A trader must do his/her fair bit of research online first before buying a stock. Moreover, there are copious stocks that are traded on the equity markets. The traders must only trade two or three liquid stocks.
Liquid stocks are the shares possessing large volumes in the day market. This allows traders to exit open positions before the trading sessions close.
10. Close Open Positions
Some traders may assume its better to take delivery of their positions in case desired targets are not attained. This is a critical error, and it is important to close all open positions regardless of a profit or loss on that stock.
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11. Lookout for Resistance and Support
Every stock price acts mercurial within a range from the initial 30 minutes of the commencement of the trading session, called the opening range.
The highest and lowest prices during this tenure are assumed as the resistance and support levels. The purchase should be made when the share price moves beyond the opening range high and sold if the price descends below the opening range low.
12. Know When to Exit the Position
For trades that yield profits and price-give reversal (price may follow reverse trends), it is recommended to book the profits and exit open positions.
Besides, if the conditions go against the position, a trader should exit without delay and not wait for stop loss to be activated. Traders can significantly reduce their losses this way.
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Final Words
Day traders always face inevitable risks that are prevalent in the stock markets. Price volatility and fluctuating daily volume lead to a large manipulation of stock prices and trade graphs.
Ideally, traders mustn't risk a heavy amount from their finances on a single trade. This would help traders deal better with risks. Traders must know when to drop their positions and seek better stocks instead.
Timing the market is crucial as stocks vary largely according to the time the trade was made on. Traders must tread carefully in the market as the volatility could lead to heavy losses if large sums of capital are used.
