Eight Stock Trading Tips
Read on and memorise these tips, they’ll help you make more of your efforts in the stock market.
Knowledge is Power
Apart from understanding the basic trading procedures, a day trader needs to stay updated on the latest stock market events and news on what is affecting stocks – the economic outlook, the government’s plans for interest rates, and such. Research the markets and create a wish list of all the stocks that you would like to trade and stay up to date on matters related to the general markets and selected companies. Visit trusted financial websites and scan through business newspapers.
Set Some Money Aside
Think about how much of your seed money you are willing to risk on trades. A majority of the successful traders out there will only risk less than 2% of their capital per trade. If you hold a $40,000 trading account and risk 0.5% of your money on each trade, the maximum loss/trade would be a meager $200, that 0.005 multiplied by $40,000. Consider setting aside extra funds that you can trade with and won’t mind losing – though this is quite unlikely.
Set Trading Times Too
Day trading will require commitment and time – a better part of your day, to be honest. Do not consider day trading if you only have very little time to spare as the process will require you to track the market and spot openings, which may arise at any moment during trading hours. Jumping on opportunities as soon as they appear is key to being successful as a day trader.
As a novice day trader, it’s advisable that you focus on a max of two stocks during any given day trading session. Working on a few stocks will make it easier for you to track and find opportunities. Set up free stock alerts to keep on top of things.
Avoid Penny Stocks
As a day trader, it is obvious that you are looking for low prices and deals; nevertheless, you are advised to avoid penny stocks. Penny stocks are somewhat illiquid, and the likelihood of hitting the jackpot are quite bleak.
Time Your Trades
Most of the orders placed by traders and investors will often start to execute immediately the markets open at the beginning of the day, something that often leads to price volatility. Seasoned players often recognize the patterns and can make perfectly timed trades that make them profits. As a novice trader, start your day by just reading the markets without making a move in the first 20 minutes. Middle hours are often less volatile, but movement will start picking up again towards the closing bell. While the rush hours offer the most opportunities, it is safer for newbie traders to avoid them until they have earned some experience.
Cut Your Losses with Limit Orders
Take the time to think about the kind of orders you’ll use to exit and enter trades. Do you want to use limit orders or market orders? Market orders are executed at the best price at the moment of placing your order; as such, there is no “price guarantee.” Limit orders, on the other hand, do guarantee price but with no execution. A limit order helps the trader trade more precisely, in that the trader sets their executable price for buying and selling.
Be Realistic with The Profits You Want to Make
A trading strategy does not necessarily have to win every time for it to be considered profitable. Most traders win 50-60% of their trades. At the end of the day, they earn more from their winners than what they don’t make on their losers. So, ensure that the risk on each of your trades is limited to specific percentages of your account and that your entry and exit methods are properly defined and noted down.