You have decided to be a day trader. You have chosen your broker. And now you are asking what next. We are here to help you. We share some very useful tips for beginners. You will learn what equipment you need to have, when and what to trade and how to take care of your capital. So let’s get started!
Choosing the right market for day trading
There is a variety of markets available for day trading. And it is possible to earn a profit on all of them. The important thing is to decide which one you will choose for the beginning. Do not try all at once. This is the worst thing you can do. It will unnecessarily distract your attention. Focus on one market first, learn to trade on it and after that, you can see if there is a market that better fit your personality.
Maybe you have already thought about your favourite market. Still, what you need to take into consideration is not only what you like, but also how big capital you need in order to begin.
Below you will find a short description of different markets to help you make this decision.
- Forex, that is the foreign exchange market, is based on trading currency pairs like for example EUR and USD. Here, you can begin trading with just $50. This is the market that requires the smallest amount to get started. Naturally, you will have chances for higher profits if you start with a bigger amount.
- Futures markets offer a broad assortment to trade. You will find commodities and indexes here, such as gold, crude oil or S&P 500. You may need to have $1,000.
- Stocks are the most intensive option with the requirement of having $25,000 at a minimum.
Completing the necessary equipment
You will not need any extraordinary equipment. Just some basics.
You need to have a computer or laptop to be able to trade. It does not have to be the newest one, nor the most expensive. But it should have memory big enough and a fast processor, so your transactions run smoothly without any delays. You do not want your computer to crash while your position is open.
You may find out it is easier to work on two monitors. However, you can do well with one as well.
Good internet connection
You want to be sure you open and close trades on time. And while all the operations happen online a reliable internet connection is a must. Order a cable or fiber-type connection.
Check if the speed offered is sufficient. The platform has to update quickly. If you notice some breaks in your connection, seek another internet provider.
Choose the one you can trust. A broker earns money from fees and commissions traders pay. You want to pay as little as possible, but on the other hand, the cheapest is not necessarily the best. Check the broker thoroughly and find out if he provides a reliable support service.
The fees and commissions are normally higher at major banks and more customizable with small brokers.
Check your broker’s offer of the platforms. Try several different ones and choose the one you feel the most comfortable with. You can always change the platform underway or adapt it so it suits your needs better.
Choose the right time to trade
You do not have to sit all day long at your computer desk. Choose the best hours for the market of your choice. Trade within this time every day to practice consistency. What are the best times to trade on various markets?
- You get the possibility to trade on the forex 24 hours a day. Each currency pair is characterised by different volatility during different times. For example, the most popular pair, the EURUSD, has the highest volatility between 7 a.m. and 10 a.m. EST when the London and New York markets are open simultaneously. Check when the markets relevant to the currency pair of your choice remain open.
- Futures day trading brings the best results near the opening and closing hours. Check the official times for a specific exchange. Generally, you should focus on the morning hours, from 8:30 a.m. to 11 a.m. EST.
- Stocks, similarly to futures, are best for day trading after opening and before closing. Choose the morning hours if you want to spend just 1 or 2 hours on trading. From 9:30 a.m. to 11:30 a.m. EST is the time with the highest volatility. Otherwise, you can also open a session during the last hour which is from 3 p.m. to 4 p.m. EST. If you are keen on investing but unsure about venturing into trading at these hours, you can also try weekend day trading.
Learn how to control trading risk
You should think about two values, the trade risk and daily risk. The first one says how much money you are ready to lose on a single trade. Aim to lose no more than 1% of your capital. To do that, you should pick carefully the moment to open a trading position, estimate the appropriate position size and set a stop loss to secure your transaction.
The daily risk is the amount of money you can afford to lose during the day. You can, for example, determine it will be 3% of your capital. It gives you 3 losing trades with the trade risk at 1%. With a good strategy, it should not occur often. If it happens, however, be consistent and pause trading for the day.
With time, you will be able to adjust the trade risk to your winnings. But stop trading, whenever you reach that amount.
Develop a trading strategy
There are plenty of trading strategies to choose from. Do not try them all at once, nor jump from one to another. The best thing you can do is to pick one strategy and apply it consistently. Make some adjustments, if needed, but stick with it for a time being. Only then it can prove its worth.
Test your strategy in the demo account. Most brokers provide such a feature for free. You can practice there for as long as you need to, but it is recommended to spend at least 3 months on a demo account.
Switching to the live account
A practice account is an excellent tool for training. It cannot, however, replace a live account. At some point, you have to switch to the real one in order to earn real money.
You may notice, that trading is not going so well right after your transfer. Do not worry. This is normal because it is not possible to recreate the real market and emotions connected to investing real money 100%.
Do your best, be consistent, stick to your strategy and focus on one trade at a time. After a while, you will become more confident and you will be able to work out a stable profit.
I believe the tips provided in this article will help you to get started. Prepare your working environment. Check if your computer is sufficient and the internet connection reliable.
Choose the market that is interesting to you, but which you can handle financially at the same time. Find out which are the best times to trade in this particular market.
Think the trade risk and daily risk through. Implement a trading strategy and prove its worth by using it consistently.
Develop your trading skills during a few months on a demo account. Then switch to the live account and start making money.
Wish you good luck!