Finance Tips: How To Start Daytrading

These days, advice for daytrading strategy comes in many different forms.  The reality is that each trader has different expectations and may want to see different results.  Some people are simply looking for stock tips, while others may be looking for tax advice for daytrading.  However, some of the most important daytrading tips range from temperament, strategy, psychology, and money management.  Here, we will look at a few tips for anyone looking to get started.

Be Ready To Start Researching

It may seem obvious, however, basic knowledge of practical trading procedures is essential before any real money should be invested.  Daytaders must find good entry points for their positions and keep up to date on all the latest market news that can impact asset prices.  According to the educational tutorials on AskTraders.com, this can include events like a central bank changing interest rate policy, a corporate earnings report, or the changing of an influential political regime.  For daytraders, it is always important to do your economic homework and remain aware of upcoming news events that might have a difference in the market and in the world economy.

Establish An Appropriate Trading Account Size

Daytraders must also assess the proper amount of capital which can be risked on each individual trade.  In many cases, the most successful daytraders will avoid risking more than 1-2% of the total account size in each trade.  For example, a daytrader with an account size valued at $10,000 USD might set maximum loss parameters at $200 USD (or 0.02 x $10,000).  Of course, there is nothing wrong with the decision to set these parameters at lower levels as this can help to set aside an account surplus of funds.

Begin With Smaller Trades

When a daytrader is still in the beginner stages, it can be good to focus on one or two assets during each trading session.  Sometimes, it is easiest to find new opportunities with just one or two assets to watch. Additionally, smaller trade sizes can often be easier to manage and this is often the safest approach for newer traders.

Timing Trade Decisions 

One mistake new traders often make is to start placing orders as soon as the opening of the market starts in the morning.  However, this often is when price volatility is at its high point. A more seasoned trader might be able to see price patterns and appropriately time the market to make significant profits.  However, for newer daytraders, it is often better to read what is happening in the market and avoid making moves near the opening bell.

Use Limit Orders to Reduce Losses

Another factor is that daytraders must decide the types of market orders that will be used to open and close trades. When daytraders place market orders, the trade is initiated at the best possible price which is available at that time.  This means there is not a price guarantee for any position. In contrast, a limit order can guarantee the trading price.  In some cases, the trade can not be opened at this specific price. As a result, limit orders can help daytraders operate with greater precision and this can help to reduce losses.

Establish Realistic Profit Expectations

Every daytrading strategy cannot be expected to beat the market and become profitable. In many cases, expert traders might only have success in 50-60% of all trading ideas.  However, it is important to make more money on the winners relative to what is lost on the losers. Trading risk should be limited to specific percentages relative to the size of the total account and realist expectations must be maintained for potential earnings results. Every aspiring daytrader must understand the basics outlined here in order to limit losses and maximize gains over time.