How to Master the Art of Day Trading

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Is there anyone reading this who does NOT want to make money? If you are in that group you can stop reading now. Everyone else – let’s talk about how you can increase your income through the variety of options available to day traders. Day trading is-in its simplest description- the activity of buying and selling financial instruments such as stocks, currencies, commodities, options, and various forms of futures. When done efficiently and armed with sufficient information, day trading can be a considerably profitable exercise. On the other side of the coin, reckless or uninformed day trading can result in financial loss. Here we will discuss the art of day trading particularly online stock trading and day trading software.

Tools of the Trade

In the past, day trading was handled by stock brokers on behalf of clients who compensated their brokers through various fees related to exercising their instructions for selling or purchasing stocks and other financial products. Today’s digital environment with access to computers, software, and global markets has expanded this capability to effectively anyone with an interest in participating in day trading. All you really need to get started are:

Computer with internet access (that is pretty much a given requirement)

Software – Multiple elements of software are either required, or beneficial to day traders:

Trading software – this is the software that actually allows a day trader to execute requests to buy or sell. The most flexible and desirable trades are those that can be made in real time without waiting for communication with a third party or conventional brokerage to execute the trade for you.

Analytical software – there are various software tools that provide the capability to forecast or analyze such critical information as stock trends, future price predictions, and even backward analysis of what would have happened if you had exercised trades at certain points in time.

Charting software – this is in essence a type of analysis software that is commonly used by day traders to obtain a quick visual indication of how individual stocks or the market in general are performing at a given moment or over a period of time.

Reliable News Sources – to make decisions and be readily aware of changes in the market, acquisitions, mergers, etc. you need up-to-date information on activity that could provide opportunities for profits as well as warnings that may indicate potential losses to be avoided. The old saying that “knowledge is power” is nowhere more applicable than in financial markets.

How Do You Get Started?

Day Traders typically watch for stocks that they can buy at one price then turn around for sale on the same day at a profit, whether large or small. Indicators used to determine stock of interest to a day trader include the use of trend lines provided by their selected analytical software, reliance on news feeds, and even monitoring current prices for individual stocks of personal interest.

Every stock has a low of day (LOD) and high of day (HOD) price as the market volatility progresses throughout the business day. By tracking those values over time (even a short amount of time) you can attempt to predict when a given stock is at the LOD price to purchase and subsequently sell at a HOD price. Some strategies utilized by day traders include:

Fading – involves selling immediately after a stock price makes a sharp upwards move.

Scalping – one of the most frequently-used strategies, whereby a sale is made as soon as the trade becomes profitable, even if only slightly.

Daily Pivot – This involves taking profits based on executing trades at the LOD purchase price and HOD sale price.

Momentum – following trends or your news sources to execute purchases when a stock is trending upwards or there is high volume activity indicating profitability. Sales are then executed when the trend begins to subside or volume starts to decrease.

Why Day Trade – Risks and Rewards

With the expanded capability of online trading and availability of online brokers day trading had become an enticing resource for making extra income on a part-time basis, or even making your living as a full-time day trader. There are definite “DOs and DON’Ts” for day traders:

DON’T

  • Exceed your risk tolerance. Day trading can be quite profitable for those who monitor their gains and losses closely. Over-buying can erase profits and original capital quickly.
  • Trade on hunches. The best trades are those based on facts – market trends, mergers, and acquisitions, sell-offs, news sources etc.
  • Ignore history. It is important to track your gains and losses for establishing and refining your investment strategy. Learn from both your successes and failures.
  • Over-extend your activity. You may want to day trade in particular markets or even foreign exchange currencies (forex) but limit your initial scope until you gain confidence and an understanding of those markets.

DO

  • Start slowly. Experience and familiarity with how the market and individual stocks fluctuate will provide you with confidence as well as the ability to recognize warning signs.
  • Watch your budget. As the gambling rule goes – never wager more than you can afford to lose. Your loss tolerance should guide all investment activity, whether day trading or long-term investments.
  • Develop reliable sources of information. Through monitoring news sources, web sites, and even ‘tips’ from family and friends, you will quickly be able to determine which of these can typically be trusted, and those that you should shy away from.
  • Use Discipline. Chose a strategy of trading that meets your trading goals and stick to it. Without discipline, your strategy goes out the window – quite likely with your profits.

Important consideration:

Evaluate online brokers thoroughly and pick one with positive attributes. You want to be able to trust the service and pricing of your online broker who will execute your trades promptly and consistently. Brokers vary greatly on pricing and service offerings.

SureTrader is a leading online broker for day trading that can provide you with many attractive options for your trading, and includes a mobile option for traders on the go.

Disclaimer: SureTrader Blog is not intended for U.S. persons. Stock information is not to be viewed as buy or sell recommendations.

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