Day trading is an art in itself; it requires meticulous planning and the right set of skills to get things right. The concept basically involves a market position to be opened for a short period. There are two forms of day trading; firstly, the long format is one where the trader buys the stocks completely and the second format is called short where the shares are borrowed for a short amount of time and then traded for a particular price.
Day trading is effective since it outplays the chaotic nature of the market by being done only when the market is open thereby negating the effect of overnight risk that usually applies when the market is closed. Those who want to start dabbling in day trading need to understand that it isn’t as easy as it sounds. A lot of young and inexperienced people in the 1990s lost a lot of money trying to day trade without proper knowledge of how day trading works. In this article, you will find some essential tips to get you started.
- Devil in the Detail
Keep your eye out for supply vs demand before you buy shares. This is important because the financial market is like any other market. If a product or share has a high supply rate, then the market is diluted with a lot of people trying to sell. But if the shares are in demand and the supply is minimal then you’ve got yourself a golden ticket.
- Risk-Reward Ratio
The biggest mistake that beginners make is that they don’t set a risk to reward ratio. You have to understand that it is okay to lose, as long as you lose small. Because you can make up for it with a big win. As you understand how day trading works, you can slowly start increasing your risk to reward ration from 3:1 to 5:1.
- Be Patient
Day trading doesn’t mean you wake up every day and trade. It means you wait for the right trade to pop up and grab it when it does. Keep a close eye on the market and if a trade comes by and your gut and research tells you not to go for it, then don’t go for it. Day trading does involve the trader to be actively watching the market, but restraint is going to be your biggest asset. Knowing when to retreat is something that you need to learn as quickly as possible. Wait it out, and the market will reward you.