Is Day Trading Right For You?

Day trading i.e., buying and selling of financial instruments once or multiple times within the same day can be lucrative or non-lucrative! It can be advantageous to play with price moves in one day or can prove to be adverse too if you don’t adhere to a well thought method. Stocks have potential to earn phenomenal returns in long term but there are players are in market who are making big fortune every single day! Welcome to the world of intra-day trading. It is a mixture of profits and losses but there is a hope to start afresh the next day!day-trading-tips

Whether day trading is right for you or not, is something which is subjective question! It all depends upon potential, knowledge, experience and exposure of investor. But here are few aspects relating to day trading which can help you in taking a decision whether or not it is right for you!

  1.     Requires continuous monitoring: Day trading is not for those who have a busy profession as it requires continuous monitoring of stock market. This means from the time opening bell rings till the time trading session ends, it needs your undivided attention. So if you are into busy profession and have no time to monitor the ups and downs of the market then this field is not for you!   
  2.     Knowledge of stocks: stock-market-day-tradingIf you are into day trading then you should put your every effort to square your position at the end of day! Hence, it is necessary that you should trade in large-cap and index-based stocks as they are traded in high volumes and are very liquid. This is to ensure that you don’t end up holding those stocks that have no buyers at the end of the day! You would learn this gradually by trading regularly but if deep diving in this field is not your game, then it is better not to enter the streets!
  3.     Invest only what you can afford to lose: The risk involved in intra-day trading is more than risk in investing stocks. So you should invest only that amount which you can afford to lose! If you invest in nominal amounts then there is very less risk of losing big amount. But if you invest too much then an unexpected movement can wipe out your entire investment in few minutes! So need to have appropriate guidance and experience before you put your money into this market of sharks and bulls.

Like we mentioned before, whether day trading is right or not is subjective question! But if you have time to invest, willingness and potential to take risk and knowledge and experience then day trading is right for you! But if you want to enter it just because one of your fellows is making large profits out of it then it can be riskier! But not wrong! In the latter case, you need to be very cautious and gradually work towards increasing your knowledge bank. And never forget to set realistic expectations as they will only help you in taking necessary steps to achieve your big goals.

DIFFERENCES BETWEEN DAY TRADING AND INVESTING

In layman terms, we can say that day trading and investing are like chalk and cheese! Both involve buying shares but the underlying phenomenon is completely different. Both cannot be mixed as the first one takes into account technical knowledge while the latter one focuses on fundamentals. So while stock trading and investing might sound like synonyms but there is a major difference between them!

The Basic Difference

The basic difference between day trading and investing lies in activity frequency and the time period for which positions are held! Day trading requires active management and the positions are held for very short span of time whereas investing requires passive management and are done with an objective of long term holding. Systematic investment plans are basically investment and that is why they are called so whereas long, short and buying and selling of mid-cap and liquid funds is an example of day trading.investing-and-bussinesman

Frequency of commissions

Commission is basically dependent on the number of transactions and because day trading involves more number of transactions, it leads to higher commission costs. Commission is charged on every purchase and sale of a stock and a day trader buys and sells multiple times during a day. On the other hand, investors hold the positions for months and years and thus for them commission amount and frequency is insignificant. Day traders are sensitive to commission costs and it basically increases their purchase value and decreases their sale value.

Notion & Strategy

Day traders are not concerned if the company is running on hype or not because their focus is on price. They just target volatile stocks with high volume through which they can earn short term gains. They look for stocks which are highly liquid, profitable and saleable so that they can get out as quickly as they got in! Investors are always focused on investing in quality companies which have bright future. They want to invest their money for long term in those companies on whom they can rely on so that their money stays safe and secure. Investor is focused on underlying asset which is generating the income and day trader is focused on income itself!day-trading-bussiness

Involvement

Day traders have to be actively involved and monitor the market indices closely as sudden hypes and lows can have a huge impact on them. On the other hand, investors read the news of day hype after they get back from their work as they are more focused towards long term price movement of the stock.

Risk Tolerance

Traders have different threshold of risk tolerance as compared to investors. This is because investors carry a mind-set of holding that stock for months/years to come and thus intraday movements because of launch of IPO or merger is irrelevant for them. On the other hand, traders are sensitive and thus a minute drop say 5% makes them change their entire strategy for the day as they aim to square their accounts at the end of the day!

Apart from the differences listed above, there are separate tax regime for intraday and investing profits and losses!

Day Trading Tips and Strategies for Beginners

Day trading is a lucrative game of buying and selling a given financial instrument in just a single day. This act can be done several times within the same day as one tries to take advantage of any opportunities and small price moves. To avoid any disappointments, whether you are new to it or a veteran, it’s important to use a well thought-out method. There are many strategies and tips that you can use in order to achieve best results. This article will cover the day trading tips and strategies that will help you move from being a novice to a pro trader. The list is discussed below.

  1. Solicit For the Best Knowledge

As the saying goes, “knowledge is power.” there is no doubt to this aspect. You need to get vast knowledge about the latest stock market events and news that directly affects stocks. Consider researching about the economic outlook, Fed’s plans for interest rates among other aspects. You can only get reliable information from reliable financial websites and known business newspapers. Ensure your search is regular and prices. This means, you have to make a list of all the stocks you are interested in and then research not only about the general market but also selected companies.

  1. Come Up With a Realistic Budget

Any financial business or game needs planning. Determine the exact amount you caBudgetn comfortably risk per trade and set aside this amount. It’s advisable to keep it between 1% and 2% of your account per trade. Prepare and determine another surplus amount that you are not only willing to use for your trading, but also prepared to lose in case of any eventuality. With this, you will avoid making the mistake of not being able to meet your basic needs just because a trade went sour.

  1. Consider the Time

Time in itself is an investment and day trading will definitely require most of your time during the day. If your time is limited, don’t try this game. Traders that make it in this endeavor usually move (decide) very fast. During trading hours, you have to keenly track the markets and quickly identify any opportunities that arise so you can take advantage of them.

  1. Start Small

All beginners are advised to stick on just one or two stocks to handle per very trading session. This is because, it’s easier to track and identify opportunities when you are handling fewer stocks compared to when the stocks are so many. Remember a journey of a hundred miles starts with just a single step. Don’t be deceived.

  1. Penny Stocks Should Be Avoided

As much as all you need are lower prices and great deals, penny stocks needs to be avoided like plague. This is because, penny stocks are very illiquid and often, the chances of hitting a great jackpot and so bleak.

Penny Stocks

  1. Properly Time Those Trades

Remember, many orders that traders and investors place start to execute in the morning; immediately the market opens. It’s this aspect that contributes to price volatility. A pro can easily recognize patters and make appropriate choices that will earn profits. For a beginner, don’t be in any rush, just take the first 15-20 minutes to study the market very well. Movement during the middle trading hours isn’t as volatile but this trend changes and these movements increase towards the closing time. Many rush hours come with many opportunities but beginners are advised to shy away from them.

  1. Cut Losses with Limit Orders

This is where you make a decision on the exact type of orders that you will use while entering or exiting trades. You can either use a market order (one without price guarantee and is executed based on the best price that is actually available at that time) or a limit order (one without the execution but with a price guarantee). In the later, you are fee to set your preferred buying and selling price.

Stop Loss Order

  1. Be Very Realistic About Profits

It’s good to note that most traders only win about 50% to 60% of all their daily trades. This means that all the strategies you use don’t have to always be profitable. Try to lose less on your losers and make much more on your winners. To achieve this, ensure that any risk on every trade is being limited to a very specific percentage of the amount on your account. Also, this has to be done based on your written down exit and entry methods.

  1. Remain Composed

Stock markets can really test your nerves at time. The bottom line is to always stay cool. Ensure that all the decisions that you are making are being governed only by logic and not any emotions.

  1. Adhere to Your Plan

Though fast movement is key in this game, fast think isn’t mandatory. Develop a reliable trading strategy before you begin. Ensure you also set the discipline that you must hold on your set strategy. Basically, staying focused on strategy is much more important than constantly chasing profits.

Following the above day trading tips will help you grow into a pro trader. You will surely earn great from being a day trader.