Beginner Day Trading Strategies
Getting started in day trading requires several essentials. Novice day traders require the right platform and software to begin their trading. Before they even get to that point, however, they must learn and develop strategies for their initial day trading. As day traders progress and become more experienced, they can utilize more sophisticated trading methodologies. Beginner day traders should focus on the relatively simple and tried-and-true strategies, as there’s a steep learning curve. Once you find a strategy that suits you, stay with it until you have it mastered. It makes no sense for a beginner to move back and forth between trading strategies until they have full confidence in what they are doing.
Information is Power
With any endeavor, the more information you possess, the more likely you are to become successful. Accurate, up-to-date information is an absolute necessity for day trading. You need constant access to financial/business news sites, as well as regular news sites covering national and international events. Trouble breaking out in one part of the world can affect stocks, whether directly or through the supply chain. Good news can put stocks on an upward trend, but you can make money on bad news via shorting stocks. Mastering technical trading charts is a necessity, as they let you know about specific trends.
Treat Day Trading Like a Business
Sometimes the most crucial strategy for getting started in day trading is also the most obvious. Day trading is a business, and any business needs a plan. You know you need a computer and reliable, high-speed Internet access. What happens if your computer crashes? It’s probably happened to you in the past. A backup computer prevents you from going into meltdown mode. You’ll also need stock scanning software to locate the right stocks for your strategy. An economic calendar reminds you when major data releases are due, and that’s when prices can move faster than usual.
Your business needs a budget, and not just money for trading. Allocate funds for taking online classes in day trading and technical analysis. Once you have the basics, use a stock simulator to get your trading feet wet before heading into real-world day trading. For best results, work with the simulator for at least three months until you have your strategy down pat and are profiting overall in your simulated trades.
As well as a business, day trading is also a discipline. Once you get the hang of trading, trade consistently at the same times of day. If you work another job, it’s often hard to day trade during prime trading hours, which are the first two hours after the market opens and the last hour prior to closing. No matter where you are located, that’s equivalent to 9:30 – 11:30 a.m. Eastern Standard Time and 3 to 4 p.m. EST. If your time is truly limited, stick with morning trading. It is quite possible to make a decent income day trading only a few hours daily, if you develop your strategy and skills. You will not make a decent income if you only trade once in a while on a casual basis. Day trading does not work that way.
What exactly constitutes a trading strategy? The criteria may differ according to the methodology, but it’s always objective. Trading strategies consist of:
- Conditions required for entering and exiting trades
- Researching and executing the math behind the strategy
- Historical analysis to determine performance feasibility
- Money management
When starting out, you want a strategy that helps you learn how to trade, while keeping losses at a minimum. Shouldn’t that state “profit as much as possible?” Not at the beginning. Expect to lose money at day trading until you educate yourself, train and get the hang of it. If you happen to come out ahead in the early days, that’s great, but now is the time to concentrate on getting the hang of trading and also knowing when to cut your losses. The latter is a trait common to all successful day traders. Remember that you will learn from every trade. Also keep in mind that every day is a completely new day in the market, and that each trade differs from another.
Not So Fast
Day trading is exciting. That’s a great part of its appeal. Beginner day traders may want to jump in with both feet, but that’s a bad idea. Forget the adrenalin rush, and hone your initial strategies by conducting infrequent trades. Once you have completed a trade, analyze every aspect, including your emotional reaction. Learning to control your emotions during trading is the key to becoming a successful trader. Begin with trading in larger time lots – trade in minutes, not seconds. Once you’ve set a target and a stop, leave them alone. Once you have a few dozen trades under your belt, and a good understanding of what went right or wrong with each one, you can graduate to more frequent trading.
Simple Moving Averages
Simple moving averages (SMAs) are classic trading strategies, and easy formulas to figure out. Just take a stock’s closing price for X number of trading days, then add them together and divide by the amount of trading days. That number is your SMA for that timeframe. Traders usually go with 5, 10, 20 or 50 trading days to determine the SMA, but the number of days in question depend on whether you want short-term, intermediate-term or long-term trends. Day traders most often use the five-day SMA, as it the most reactive. Experienced day traders may use SMAs based on hours or even minutes of a stock’s price. The SMA is among the easiest trends to follow in a chart.
With SMAs, you’re on the lookout for a stock breaking out – heading upward – or trending downward. The latter is for shorting purposes. Day traders don’t want to bother with “sideways” stocks, or those with SMAs that move a little bit in either direction, but rarely make a significant move. Such stocks can get stuck sideways for months or even years.
Breakout occurs when a stock rises above its resistance level – a level it previously didn’t seem to rise above – and high volume generally accompanies this benchmark. That volume may last a few hours. You’ll find stocks with breakout potential through technical trading charts. As you learn to decipher chart symbolism, you’ll notice that virtually completed flags, head and shoulders and triangles often indicate breakouts. Positive news about the company or a new management team may herald a breakout.
Fast action is needed for successful breakout trading, and timing is of the essence. One caveat: Even though you have to act fast, you must confirm the breakout trend is legitimate. Otherwise, your breakout could end up a fake out. The fake out occurs when the stock appears poised to rise above the resistance level, but fails to do so. If the breakout is genuine, stay tuned to the charts. If the breakout heads south, cut your losses at once. Use the stock’s previous support level as your exit price.
Momentum Day Trading
Day traders want to find stocks that move a great deal in the course of a trading day – those having a great deal of momentum. The concept behind momentum trading is identifying and buying those stocks just prior to their big moves. How long the trader holds on to a stock depends on the stock’s momentum in either direction. For some stocks, it’s 10 minutes – for others, virtually the entire trading day. A day trader wants to aim for the point just before the top of the momentum, so he can cash out before the stock starts heading in the other direction. Momentum in a stock usually occurs after a specific event. Earnings growth may top expectations, or the company made an acquisition.
A Personal Risk Strategy
Day trading is inherently risky. There’s no getting around that fact. Even experienced traders only profit from about half of their trades. What those traders do have is a personal risk strategy, and it’s wise to develop your own risk strategy as soon as possible. Successful traders don’t risk great amounts of capital on any one trade. At best, any individual trade accounts for between 1 to 2 percent of their trading funds. When you’re starting out, stick near 1 percent of your capital per trade.
The SureTrader Advantage
SureTrader offers the best platform for beginning day traders. SureTrader allows you to find the strategy that works for you. Take advantages of our free $100K demo, which allows you to hone your strategic skills and learn to trade before risking any of your own money. Our state-of-the-art technical charts provide trends and momentum and stock histories, all individually designed for your trading strategies. Day traders also have access to 10,000+ stocks for shorting, the largest number available on the internet. Our low fees and commissions are just additional reasons to make SureTrader your day trading platform.