Learning to day trade is a goal of many people looking to achieve financial freedom an additionalsource of income. Often, those unfamiliar with the concept picture a trader with 6 monitors clicking buttons furiously as they buy and sell securities rapidly. While this image does exist in small capacities, the reality is that there are many ways to day trade, and almost anyone can learn to do them without absurd computer setups and millions of dollars.
The key to accessing this level of success and financial freedom hinges on education. If you learn about the types of ways to day trade, approach stock trading like a business, and stay dedicated to improving at a sustainable rate, you will increase your chances of becoming a profitable trader. Thus, we’ve compiled a list of our favorite trading styles to help guide you at the beginning of your trading career.
Different Types of Day Trading Strategies
This article is mostly about short-term trading; while we highly encourage people to have knowledge about long-term investments and wealth management, those strategies are going to be different than the methods we describe here. For short-term trades, there are a few ways to approach a security over different time periods:
- Intraday trading
- Short term options trading
This is when you trade securities within one market day. Traders in this strategy pay close attention to different chart indicators and time frames. For example, you might see them looking for opportunityusing5, 15, and 30 minute time frames on the charts. When beginning to day trade, it is important to identify where to buy and sell in order to lock in your gains as an intraday trader. At StockAbility, we use proprietary methods to read price and determine if the market is at a high, low or fair value.
Scalping is one of the quickest and most volatile day trading techniques, but it can provide great value in all market environments. Typically, scalping is used to get a quick 1-2 percent move on a security that either is breaking out or reversing. Often, scalp traders use smaller fractions of their working capital with tight stop losses and try to string together many small wins instead of going for longer-term home runs.
Short Term Options Trading
Options trading is a derivative form of trading that allows traders to leverage the price of a security vs. a set time and price. There are all sorts of options in both directions, but for day traders, it is common to try and time an event or setup in order to hit a quick strike price for a put or call. Options can be very volatile and risky, so we always advise that beginning traders educate themselves extensively first and start small while trading options.
3 Tips for Beginning Day Traders
It can be daunting to choose from different types of day trading styles while figuring out how to buy and sell securities and work all the other mechanics necessary to be a day trader. However, we are positive that with the right education and dedication, most people can greatly increase their chance of success.
The most important components after your dedication to learning are going to be about how you prepare yourself, your emotions, and the environmental factors within your control. Thus, we recommend these actions:
- Start Small with Money You Aren’t Relying on: While the goal from trading is financial freedom and significant income, you should not be betting your house (literally or figuratively) on the market. Especially as a beginner, even if you have a good knowledge base, the pace of a live market and the intensity of swings can be difficult to manage. We recommend starting with small amounts of your working capital and working your way up. In fact, we teach our students to never risk more than 1%.
- Stick to Fundamentals and Your Plan: It can be easy to take trades based on FOMO or internet hype these days. People post social media pictures of huge returns in short time frames and make it out to be as simple as buying the trendiest stocks. However, there are far more people losing vast sums of money by taking these gambles. If you are educated and purchase stocks from a position of knowledge, you will fare much better in the long run.
- Never Trade Emotionally: An extension of sticking to your plan is not forcing trades. There will always be good setups, and sometimes the best move is to do nothing in a shaky market environment. Similarly, even if the market is good, there may not be a security that fits your trade criteria. The worst emotional trading mistake to make is ‘revenge trading’ – this is where you are down on a trade so you take another to try and make it up. This often leads to compounding losses and can set traders back heavily.
Learn to Trade Stocks from the Pros at StockAbility™
At StockAbility™, we have an experienced group of professional traders whose goal is to empower our community. With our proprietary educational courses, the sky is the limit on where you can take your stock trading career.
If you are looking to gain access to information that can grant you financial independence, sign up for one of our free webinars today. It’s an investment that might just give you a lifetime of returns.