Day trading has evolved into a game of trading algorithms and a method based on decades-old principles of technical analysis. However, without trading chart analysis, they do sometimes fail.
As a day trader, you need to avoid trading ignorantly. Being able to identify short-term trends and patterns relies on good technical analysis. These 12 tips and tricks from old-school day traders will help you remain focused.
1. Know Your Financial News
Day trading is all about keeping ahead of news that affects stock markets. Knowledge is power, so stay in touch with the economic outlook by reading business and financial information.
Some investors trade on the news, which entails buying when the information is good and selling at a hint of bad news. The volatility with this strategy can lead to higher profits or losses.
2. Set Aside an Amount for Investment
Decide on the amount of money you are willing to have in your trading account. The next step is to decide how much of that capital you are ready to risk per trade. Most successful day traders stick to a rule of only risking up to 2 % on any transaction.
3. When to Buy
Timing your trades is essential as soon as the markets open, and just before closing is when most price volatility occurs. This is because orders from the previous day are being executed or the final rush to buy before closing.
Seasoned traders understand this rush, but they suggest that new players make their move when the market is less volatile (during the middle of the day). Otherwise, you can learn to read the morning rush before starting to trade after about 20 minutes.
Typically, day traders look at liquidity, volatility, and trading volume. After that, they identify the right entry point to invest in and adhere to their plan.
4. When to Sell
Once they have ensured their winning position, most day-traders sell. This is known as a price target strategy. Their advice is to define at what point you will exit a trade, even before entering it.
Scalping is one of the most common price target strategies – meaning that you sell as soon as the price target is reached. A risky strategy that is also rewarding is called fading. Here traders bet on the stock’s decline after a rapid move upwards. Daily pivots and momentum are two other methods used for selling.
5. Less is More
The fewer stocks you are trading during a session, the easier it is to find opportunities.
6. Low Prices Don’t Always Indicate Good Deals
A low price may seem to offer a great buying opportunity, but penny stocks often become delisted. These stocks are only for those that are well-read and know the market.
7. Learn How to Read the Charts
Old-school traders utilize all the tools available to them. These help them determine when to buy which stock.
Candlestick patterns, technical analysis with trendlines and triangles, and volume (increases and decreases) help them to analyze the market
Several candlestick setups help day traders find their entry points. One of the most reliable is the Doji reversal pattern that allows traders to look for the turnaround point.
8. Limit Your Losses
Experienced day traders cut their losses by hedging their positions or by using options. These strategies are sophisticated, so it’s better that you use methods like market or limit orders to cut your losses.
9. Other Buying Strategies
You will indeed develop your unique trading style, but you can either rely on trading on news or by following the trend until you do. Scalping is another technique that allows you to enter or exit a position by looking for gaps in the bid-ask spread. Contrarian investing means that you buy on the expectation of a changing trend – during falls or short sells when the stock rises.
10. Profit Realistically
Profit doesn’t mean that 100% of your stocks are profitable. Realistically, traders don’t profit on more than between 50 to 60% of their trades. This is because they make more on their winning trades than they are losing on others.
11. Make the Time
Day-trading is not suitable for you if you don’t have time. On the other hand, if you want to track the market and see opportunities sufficiently, limited time won’t do.
12. Act Decisively
Good trades can pop up at any time the markets are open. Once you spot an opportunity, you must move decisively and fast.
Day traders play an essential role in the markets. Stock markets require strong nerves and the ability to make decisions based on logic. Experience and the right skills ensure success.