When referring to day trading, most people are talking about buying and selling securities during a 24 hour period. These intraday trades are dependent on the volatility of the stock price, as well as short term catalyst and historical price points.
However, if day trading was as simple as a two sentence description, everyone would do it profitably. The reality is that there are many different variables to consider in trading. The majority of day traders lose money, and without sound trading strategies and technical analysis, you’ll find yourself in an uphill battle.
Luckily, there are great techniques to prosper and resources to educate you for long-term trading as a consistent source of income. Read more to build the basis of a trading career and help get your financial education on the rise.
Learn by Starting Small
Regardless of the resources you use to educate yourself, the first tip we have is to protect your capital early in your trading career. Once you start day trading, the moves will seem fast and you may make poor decisions. Don’t worry: this is a completely normal way to start any skill-intensive endeavor!
The learning curve can also be quick if you have the proper tools at your disposal. A big part of getting through the first few trades is the emotional discipline required for all parts of buying, selling, and dealing with price action in either direction.
Thus, in order to keep your first few moves safe, we recommend either paper trading or only using a small portion of your initial capital to get you going.
Create a Plan Before Trading
This applies to your overall trading strategy, as well as individual trades. For intraday trading or even swing trading, one of the hardest elements is the discipline to buy stocks at deflated prices (points of weakness) and sell them when they are up. It is human nature to not believe in damaged assets and to believe that things will continue to grow without repercussion. However, without buying in at good entries and willingly taking profits in the right spots, you will be set up to fail.
Similarly, in creating your trading plan, you should have a set amount of your capital that you are willing to allocate to a given trade. Many people adhere to the 2 percent rule, but whatever system it is, make sure it allows you to diversify your holdings without overexposing you to a single security.
Finally, as you grow into your comfort zone in day trading, you will learn what works for you individually. There are plenty of resources and social media accounts on the internet that will encourage you to invest in a stock because it is a ‘can’t miss’ or ‘everyone is getting in’. Ignore these posts, especially early in your trading career. These types of plays invite volatility and are a plan you did not formulate. Conversely, look around to see what experienced trading schools have to offer – their content is typically based on market resiliency. Learn how to trade your comfortable plays first before branching out. You’ll be amazed at how hitting consistent singles can add up to a home run of a career.
Top 5 Day Trading Strategies
Now that we have discussed how to avoid certain pitfalls, let’s go over 5 simple intraday trading strategies that have been historically successful:
- Buy low, sell high
This cliché is a big old ‘duh’ on paper, but how do you identify and implement it in day trading?
To begin with, we recommend working with multiple resources so you can see what stocks have taken significant hits to their value recently. From there, you should be able to identify why; look for news or technical analysis that will indicate what happened. For some stocks, it could be poor earnings, or a failed catalyst such as a potential FDA approval. The goal of seeing why a stock is down is to assess whether it will trend back up.
Once you have identified a potential security to buy low, we also recommend waiting until it shows signs of strength before entering. There is no need to catch a falling knife, and missing out on a few cents trying to time the absolute bottom is more risky than rewarding- waiting for a clear uptrend on the charts will suit you well.
In terms of selling high, this is all relative — identify a moderate amount that you want to profit on the stock, and take your profit there. Don’t get greedy in either direction and you should prosper.
- Develop a Watch List
In order to trade stocks successfully, you have to know which ones are worth pursuing. This varies based on your knowledge, trading style, and market environment.
If you develop a watch list, you can track certain securities intraday, and find the best price point to enter when ready. If you combine your watch list with a scanner and news source, you will have a diverse set of information letting you know where the opportunities are. Often, there will even be stocks that have annual patterns based on sector or product demand. Experienced traders are in a position to take advantage of these opportunities, and we recommend taking notes throughout your career.
It will take a little bit of time to realize the value of just watching stock prices fluctuate, but eventually you will recognize patterns that let you know the time is right to strike.
- Learn many trading strategies, but focus on one early
Advanced day traders are proficient in bullish buying, selling short, options trading, swing trading, and more. These are all styles that can be highly profitable in the right environment, but each of them is a specific skill that requires knowledge and practice to have an edge.
The reason to approach many strategies at the beginning is to see which one suits your personal trading style and risk profile. There is still a largely human element to day trading, and if your personality is more conducive to a certain style, you will be more enthusiastic to learn in it and succeed.
With that said, once you have found a first discipline, we recommend becoming profitable at it before switching to another focus. This will give you a good framework of what it really takes to succeed as a day trader. Eventually, with the proper education and portfolio management, you will be able to profitably trade both directions in any market environment.
- Don’t Trade Penny Stocks Early
Penny stocks are notorious for having wild price action- including huge run ups for multiple thousands of percent. This sounds great, and you will hear stories and see screenshots of these great successes. However, these do not outweigh the potential for devastating loss, heartbreak, and the frequency with which it happens in penny stocks.
Penny stocks are priced that way because they are wildly speculative and aren’t held to the same standard as mid-cap or large-cap stocks traded on premier exchanges such as the NYSE or NASDAQ. As such, many of them can be pump and dump schemes, or have their entire value derailed by one catalyst.
Until you are very familiar with the landscape of all markets, we recommend you avoid trading penny stocks.
- Trade Your Plan
Ultimately, you are getting into stock trading because you want to have financial freedom. This means you are trusting yourself and the resources surrounding you to be proper guides for the long-term.If you follow your plan, enter at the right point and sell conservatively, you should be profiting and mitigating your risk consistently. With the proper education and experience, you can even have trading become your full-time source of income.
The easiest way to blow up an account by bad trades is deviating from your plan. That’s not to say you should never be doing it, or your plans will always be perfect, but this is typically the case. If your plans are not great, it is easier to improve them through reflection and education going forward, rather than doing things on the fly in the middle of a trade.
This makes your foundational education and technical analysis all the more important to create a strong set up for profit.
These are broader macro-strategies for early in day trading. There are many more that pertain to each sector and style of trading, and we encourage you to learn what will suit your trading career best.
Begin Your Trading Education
StockAbility™ has been empowering our community members to become financially free for decades. Our individual courses, beginner programs, and long-term coaching have all proven to be powerful resources for those looking to learn how to trade successfully long-term. Jump ahead of the new traders relying on Twitter and YouTube content and focus on treating trading like a business.
If you are looking to take charge of your future in the stock market, register for a free class or a coaching session- education today is the best investment for tomorrow.