If you are planning on being your own boss and being financially successful in the stock market, add day trading to your investment strategies. Day trading is a specific niche of the investment market, and you need to understand the ins and outs thoroughly before you try your hand at it.
One of the keys to becoming a successful day trader is to have the proper mindset. Day trading takes diligent research, staying current with economic trends, and watching market trends. In addition, you must learn key terminology and how to incorporate what they mean into your day trading strategies.
What is Day Trading?
Day trading takes place during the day, just as the name implies. You buy and sell stocks in the same trading day and hopefully make a tidy profit at the end of the day. While this sounds like an easy task, the truth is that day trading can be extremely risky. Be sure to only invest money that you can afford to lose because some days you will make money and there will be plenty of days when you lose money.
Day trading is very unpredictable and may scare some investors away. However, with patience, research, and consulting with a reputable investment advisor, you can create a very profitable niche for yourself by following these day trading strategies.
Understanding Risk Assessment
This day trading strategy is vitally important to understand. A risk-reward ratio is how much you feel you can make on a trade in proportion to how much you are willing to lose. Risk-reward is a simple concept: The higher the risk of the investment, the more money you can make. The reverse is also true: The higher the risk, the more potential you have to lose.
Use a Risk Pyramid
You can use a simple tool such as a risk pyramid. This tool does not tell you what stocks to buy, instead, it is an asset-allocation tool. The base of the pyramid is your lower-risk investments, such as government-guaranteed and other conservative investments. The middle section represents medium-risk investments, which generally offer a small but stable return on your assets by generating income and hopefully growing in value.
At the top of the pyramid (which should constitute the smallest part of your investments) sit your high-risk investments. High-risk/high-reward investments are perfect for day traders, but having solid, less-risky investments, such as the ones that are on the lower end of the pyramid, will help you balance out the volatility of the higher risks.
Learn to Limit Losses
There will be days when you lose while day trading. But losing one or two days in a row doesn’t mean you should quit; you need to keep pushing through. Do your homework and analyze your trades and your day trading strategies. Be willing to place a stop-loss order with your broker. A stop-loss order tells your investment broker to sell an asset once it reaches a particular price set. Utilizing a stop-loss strategy can help to limit risks and losses on a trade.
There are many very successful investors who make a living day trading and you, too, can become an investment entrepreneur with a lucrative career when you follow these sound strategies.
