Day trading is transacting in a financial instrument single or multiple times within a day sometime u to five or six time as with the pattern day trader rule. It is a very risky involvement as the price of a tool is very volatile in the short term. If practiced with a degree of caution and temperance day trading can be very profitable and give you the big bucks. The secret is arming yourself with tons of information, a mindset willing to take the risk and a platform to do so. This part is especially risky for newbies if they don’t exercise restraint and stick to a plan. It is imperative to know when to enter the market and know when to take the money.
Trade entries are the determinants of success of a day trade. It is not an easy monkey see monkey do affair but a lot of thinking has to be put into coming up with a trading strategy. The best time to come up with a plan is after the close of business when the daily chart has more information than an M5, M15 or H4 chart. It is imperative to understand that a bad strategy will affect the ability of a trade to generate any meaningful profit.
The following tips should come in handy when you choose to day trade.
Choose the perfect moving average.
To Perform the pattern day trader rule, do the necessary homework. Knowledge is power, and no amount of knowledge is wrong unless it is for insider trading. It will give you the continuous feedback on short-term price action, and you can be able to make decisions much easier. Intra-day bars together with moving averages tell you when the right time is to enter or exit the market. It adds one more parameter to judge technically biased day trading policies.
Do enough research
At the back of your mind, you should know that you are going up against algorithms that millions were poured to develop and very experienced traders. It is of critical importance to be armed with not only the information about the company but also with information about the socio-political environment of the enterprise in question. Read journal, newsletters and watch the news and be in the know of any minute detail that might affect the price of the stock. Make your research extensive and make a list of those companies related or not that you want to perform a day trade in. The aim of a day trade is to capitalize on the smallest changes in the price of the stock, so every detail counts.
Make use of limit orders and other trade tools to maximize profit and reduce risk.
Limit orders in the pattern day trader rule are placed above or under the current market price to minimize loss. The decision of under or above is dependent on the position you take. In the long position, for instance, a limit order shall be placed below the prevailing market price and vice versa. If the price goes down below the market price your order is placed as long, the converse is also true. Features such as stop loss and risk allowance should help you stay within manageable limits of risk and losses. You should understand high risk is good but can also be of detriment to a trading strategy.
Practice using a demo simulator.
Most demo simulators provide real time information on markets, but you trade using virtual currency. You can put the pattern day trader rule strategy through the paces and analyze defects in it and fix it without using real cash. This will not only boost your confidence but will also give you the exposure to the volatility of the markets. You get to analyze the market by actively participating through a screen. It will also help you build discipline.
Have a plan and stick to it religiously.
The market has a very bitter way of keeping people in check. It is of utmost importance to pre-plan your trades. Write down a list of companies interest you. Be true to self about the levels of profits you expect and know that the market is not a zero-sum entity and that it is your plan that is key to unlock benefits.
Trade in only the best opportunities.
There is no rule anywhere that says you must trade on a particular day. Trade in what you’re sure about. When the market is unsettled and not favorable relax and focus on learning. Do not follow alerts by other people head on without knowing what they mean. Take the strategies of very reputable traders and use them if possible. After you getting enough exposure is when you can be bold enough and modify or introduce your techniques.
Stay level headed and avoid jerky judgment.
The fluctuations in a market can cause even an experienced trader to lose it. Stay grounded and stick to the plan. In this circles, it is important to plan your trades and sell your ideas. Do not withdraw or buy into the market because it’s what everyone else is doing. Having your own identity is also important.
Stick to your budget
Have a limit as to what amount you are going to trade, know how much your risk limit is and set a surplus for the margins. Do not put all your saving into the market with the hope of making a quick score.
Choose the right financial instrument
Avoid illiquid and penny stocks. Make deals in stocks that move large amounts of share as you’re sure when you want to withdraw someone will always buy your shares.