Day Trading Tips

Day trading is defined as buying and selling your stock on the same day. If a day trader thinks that the price of stock will increase, he is going to buy it, eager to sell it later for bigger profits. However, if he thinks that the price will likely to decrease, he will sell it, hoping to purchase it back in a later time in a cheaper price.

Day trading is not as simple as everyone thinks it is. The story of a day trader sticking in front of his computer and turning his $100 investment into millions is now a fiction. In the past, anyone with a little investment, a computer and a brokerage account could easily become a day trader. But when the government stepped it, changes happened. Although they are just trying to protect investors, it is much more difficult for those who want to be aggressive and grow their money faster.

Many brokers offer the option to trade using borrowed money and charge lower fees for day traders. Day trading is becoming popular despite the very high risk pursuit. The use of margin trading at the same time the speed at which trades can be made means that for just a day, a day trader can possibly loose more money than in any given time. On the other hand, huge profit is also a possibility, one of the probable reasons of its popularity. Here are some simple day trading tips that can aid either a beginning trader or an advance trader to gain more profit:

1. Avoid being labelled as pattern day trader. Since day trading involves buying and selling the same stock in the same day using a single account, you will create a pattern if you do this more than four times in five days. If you are labelled as pattern day trader, there will be a maintaining equity balance of $25,000 in your account or you have to face the choices of letting the brokerage firm limit your account transactions to liquidation until you reach $25,000 or up to 90 days. This will seriously hold you back if you are just starting out in your investment. To avoid this, stop yourself from making more than four trades in a five-day period. Instead, watch for larger movements over a few days. However, you need to learn first how these patterns occur and what those patterns look like.


2. Never over trade. Always be careful not to over trade. Most of the time, the market is unpredictable. A beginning trader taking small positions in the market are behind these random movements. These beginners do not affect the long-term movement of the market. It is the advance traders who generate sustainable moves in the market that can give meaningful profits. They are after all, investing large volumes and hold positions longer. A lot of investors are attracted to day trading because of the possibility for huge, fast profits – this kind of attitude would doom a trader to failure. Many successful day traders are patiently sitting by the sidelines for long periods of time, waiting for a high-probability setup to happen.


3. Choose the right time to trade. The trend is not always reliable. So be careful before you invest your money in it. There are two times to trade if you consider statistics: (1) When a new trend is starting and (2) When a trend has run its course. Trading in the middle of a trend, allows you to be in the middle of the bell curve where anything can happen.

Day Trading can really be gratifying, but to gain success in this type of investment, you must learn to trust your instinct and judgment rather than relying with others.