Firstly, day trading stocks is not for amateurs. Never get into any type of trading, unless you can afford to lose that money.
Never use credit cards as your fund source. You would be surprised on how many people think they can get rich quick by using credit cards as their fund source. This is a dangerous way to play the market, so don’t.
Real day traders never hold a position overnight. The reason is because they don’t want to be exposed to any overnight news that could cause their stock to move down the next morning.
Day traders typically trade on half a point increments of movement with 1000 shares of a stock that has momentum (movement).
They try and stick to stocks priced under $20. By using 1000 shares of a stock and buying and selling in a discipline of ï¿½ point increments, they make their $250 per day (1/4 pt x 1000 shares) in one trade. That’s not a bad day’s work.
It might just take a brief moment in the morning to execute and the rest of the day you can call it quits. It just depends on how good you are and what your daily or weekly goal is to be.
Yes, you should have a daily or weekly goal to see if your system is working. A real good day trader can get a ï¿½ point trade a day. However, that comes with having a disciplined system that works well for you and also requires experience.
An important “commandment” to remember is “thou shall not hold onto a losing position”. A good day trader isn’t focusing on the money, but the transactions he is making. You can’t have emotions in day trading, or you shouldn’t be one.
As I mentioned in the above paragraph, the important thing is to know when to take a loss. If the trade isn’t working for you, get out quickly and re-evaluate what you did wrong.
The importance of using stop loss
I would also advise you to put a “stop loss” in your trade, which means if the stock is going down against what you thought it would do, it is sold for you automatically.
The inexperienced day trader sometimes becomes greedy when their stock is going higher than they thought it would, and tries to go with a mental stop in their head.
A mental stop means a trader sells it himself, when he sees it starts to fall and hit his “sell” target. The problem with that is your emotions can set in, and you might try to justify why the stock is falling.
You might hold onto the trade, thinking it’s going to come back. That’s a big mistake. You can’t be a good day trader without the discipline of selling.
Inexperienced day traders want to ride the stock up because greed sets in. Sometimes that might work for you. But in the long run, you will have more losses than wins because you are relying on your emotions to decide for you.
If you were fortunate to pick a stock that went up quickly past ï¿½ point, you can easily move your stop loss target position higher while it is going up. The stop loss will protect you if the stock turns around quickly and moves down.
It is imperative that you need to have a plan. Without a plan, you will not be profitable in the long run. You will get confused between what is luck and real skill.
Here are some informative free sights, if you want to enter the day trading scene for what stocks are moving daily and some great technical analysis on those stocks.
When you visit the investment forums, you can observe what stocks are sexy, in other words, hot. If you have a big following of traders on a stock then that creates a momentum for that stock to move up. You don’t want a stock that no one is following.
You have to have real time information, like charts, news, and quotes. Most discount brokerages offer these services free with an account.
Why technical analysis is important
Learn technical chart reading because you can’t day trade profitably without knowing how to understand charts. There are systems out there you can purchase, but you can learn this on your own by reading the forums and following these traders.
You’d be surprised on how much information is given out for free. Just make sure you’re not following someone who is hyping a stock up. If you know basic technical analysis, you will know if it is a good stock to play.
If you don’t know what technical analysis is, then you shouldn’t be day trading.
Don’t have too many stocks to follow. You only need about 3 or 4 good stocks to play back and forth.
Keep your emotions in check
Remember, real day traders show no emotions. They open and close their position in one day. That’s why they are called day traders. It’s a dangerous business to be in.
I would caution anyone who wants to try this, to paper trade your stock picks first, before you invest any money. This is a fast market and not to be taken lightly.
One last word, you must keep good records on all transactions for the IRS. You can create this as a business and take business expenses.
Check out Internal Revenue Code 475 for the mark to market accounting rule method and for more information on record keeping.