Before we come down to secrets of day trading for beginners let us exactly know what day trading is all about. A day trader holds the market position for a short period of time. Usually, he buys and sells shares on the same day.
But if the circumstances are unfavorable, and depending on the broker, can hold for T+1 or T+2 or T+3 days. “T” here stands for trading. Day trader takes the advantage of volatility of the share market during the trading day. Or sometimes a day or two.
At the turn of the century, when online trading came into existence. Many new traders jumped into available online trading platforms. They did not apply the tried and tested strategies. Many started trading to make good and easy money. They traded without much knowledge or efforts. And the results were not much encouraging. This online concept without much knowledge and efforts saw many going in for a loss. This brought the bad name to day trading.
Though day trading is neither simple nor complicated. Once you learn the rules based on certain strategy. You can look forward to possibly judge the market moves to some extent.
Top ten day trade secrets for beginners
- Identifying entry and exit points
Look for the situation where the demand and supply are extremely unbalanced. You can use these as your entry point.
If the number of sellers is more but there are stilling buyers, prices are about to go higher. But if the number of sellers is more but the buyers are not willing to buy, prices are about to go lower.
Identifying these turning points by candlestick chart and historical example. You can choose your entry and exit point.
- Determine yours upper and lower cutoff level
If you buy and hold shares for a longer duration, you should decide how much profit you wish from that script. And how much loss you will be able to bear if things do not turn up according to your expectation. That is identifying higher and lower cutoff points.
Stick to the plan you made. Do not be greedy is prices move further than you expected. Though you can increase your stop loss to a higher level. Especially in the market which is in bull run phase.
- Set your targets for risk reward ratio
When a beginner starts trading he may lose some trades and may gain from some trades. He should be mentally prepared for both, not only for one. In the initial period he may set a target for every three profit he should get one losses trade. As he gets the experience he may change the ratio to five favorable to one unfavorable.
- Patient is the key
It is not necessary to trade every day. Often it is seen that successful traders trade only and only when the opportunity meets certain criteria that they have set.
They may be in the market and maybe even in front of their computers, observing the market, but still, do not trade. They do not trade just to do something. First, they plan their trades and then trade according to their plan.
- Follow trading in a disciplined way
Trading in an impulsive way can be dangerous. It is the worst type of behavior. You need to have a trading plan and should stick to it whatever the condition may be.
If you are greedy you will hold on to your position for too long. If you are fearful than you might not think of holding for a second and sell the shares. In both the conditions, you will not be able to make the substantial profit.
- Sell/buy according to as planned
Successful traders are disciplined and work according to their plan. They act quickly when the opportunity presents itself. They automate their order placing. It is because they are disciplined and have worked on their plan minutely.
In case they are wrong in their judgment or calculations they opt out immediately, thereby saving themselves from the major loss.
- Always trade with surplus funds
Successful traders do not use their capital at one go. That is if they have capital of Rs. 1,00,000/- They will use Rs. 1000 to Rs. 2000 for one trade. They may have many trades of these small amounts.
Most of their capital that is around Rs 80,000/- or so they will save it for retirement or long-term investment. The big part of their capital they use for long duration positions. They may use this occasionally for trades that are 101% sure will be in their favor.
- Diversify your holding
You should have a day trading budget. That is how much total amount you will use for day trading today. Set aside 2 to 10 percent for some emergency buying when a better opportunity arises. See that you do not exceed your position. Always buy shares of different sectors or industry.
- Dabble in other avenues
Do not limit yourself only to stocks. You can diversify into forex, future, and options also. These asset classes display the same volatility as stocks. Often one of them will give better opportunity than the other. Like when stocks rise, gold decreases and vice versa.
- Experience is the best teacher
Trading like any other business has its share of gain and losses. When trades are not in your favor, examine what is going wrong. Did you stick to your plan or diverted from the path. If needed make some minor amendments to your future plans.