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(This is a sponsored post discussing the in’s and out’s of how to be a day trader – please see my disclosure for more details. Image via Flickr by schrierc)
The basics of how to be a day trader
Day trading is a great option for those who want to make a good income while having the flexibility to work anytime, anywhere. However, it can be a risky venture, especially for beginners. Many new traders just want to learn how to set up their charts and start making money right away.
If you want to make a steady income from day trading, you need to spend enough time learning the ropes and have the discipline to follow a set of rules that many traders abide by to achieve long-term success. Discover how you can be a financially fit day trader.
Treat Day Trading Like a Real Job
Day trading is not an easy job. It is a time-consuming activity that involves constant learning and extensive research. While it is good to be able to work from home, make sure that you are disciplined enough to put in the necessary effort to succeed as a day trader. Treat trading like a day job and create a daily routine that you can follow faithfully.
Also, day trading can be hectic and stressful, so you should set aside time to de-stress and rejuvenate. Spend time with your family, do recreational activities, and eat and sleep well to keep your mind and body in tip-top shape.
Devise a Trading Plan
A day trading plan consists of a set of rules that govern trade entries and exits, as well as money management. While it requires substantial time and effort to devise and follow a trading plan, it is something you must do if you want to stay in the game for the long haul.
With today’s technology, you can test a trading plan before investing real money. Known as backtesting, this process uses historical data to evaluate your day trading strategies and shows you the viability of your plan. If it shows good results, you can start implementing your plan in actual trading. Make sure you stick to your trading plan and avoid taking trades outside the plan.
Study the Markets
As a day trader, you need to keep increasing your knowledge every day. Understanding the markets and their intricacies is an ongoing process. By doing hard research, you will be able to learn important facts, such as what economic reports mean. With observation and focus, you can improve your instincts and learn the nuances of the markets, which can help you better understand how economic reports impact the market in which you are trading.
It is also important to know that world politics, economics, and events, and even the weather, can all have an effect on the markets. The more you know about the past and present markets, the more ready you will be for the future.
Invest Only What You Are Prepared to Lose
Funding your day trading account can be a long-term process. Before you start using real money to trade, make sure all the money in your account is truly expendable. If it is not, you should continue to save until it is.
The money in your trading account must not be allocated to paying the mortgage or your children’s college tuition. You should not allow yourself to think that you are simply “borrowing” money that is meant for other obligations. You must be able to afford to lose all the money in your trading account.
Protect Your Capital
You may take a lot of time and effort to save money to fund your day trading account. It can be increasingly difficult to do so the next time around. Protecting your trading capital does not mean that you cannot lose money in trades. Losing trades are part and parcel of day trading. However, you should avoid taking unnecessary risks and do everything you can to survive and succeed in the trading game.
Make Full Use of Technology
Day trading is a highly competitive business. To stay ahead, you need to take full advantage of the latest technologies. You can use charting platforms to avail of a wide variety of methods for analyzing markets, backtesting to mitigate risks, and market update apps to monitor trades from any location. Even technologies that people take for granted, such as high-speed internet connections, can significantly boost your trading performance.
Keep Trading in Perspective
When you are day trading, you should always keep an eye on the big picture. You should not be surprised when you have a losing trade, as it is a part of trading. Similarly, you should not feel overexcited about a winning trade, because it is just one step in the long journey to profitable trading. Instead, you should look at your cumulative profits.
To keep day trading in perspective, you need to set realistic goals. If you have a small trading account, you should not expect to generate huge returns. Stay sensible and work with what you have.
Know When to Stop
There are two main reasons to stop trading: a bad trading plan and a bad trader. A bad trading plan will show significantly larger losses than expected in historical testing. It may be ineffective because of a number of factors, including changes in markets, reduced volatility within a particular trading instrument, or the fact that it is just not performing to expectations. If your trading plan is not delivering the desired results, it may be time to reevaluate and revise it or start over with a new plan.
A bad trader is someone who fails to stick to his or her day trading plan. This can result from a lack of discipline, poor habits, or external stressors. If you are not in optimal condition for trading, you should consider taking a break to take care of your personal situations. You can resume trading after you have overcome your challenges.
By following these tips, you will be able to build a viable day trading business that delivers long-term results. If you are in doubt, it is recommended that you work with a mentor to learn the ins and outs of day trading and develop your day trading strategies.