Day trading 101: Part 2

day trading

In the last blog post, we covered the essentials of day trading- the jargon, the mechanics and the potential benefits. In the right hands day trading can be an effective way to earn money in a short space of time, but with big rewards come big risks.

In this blog post, we’ll go over the key things to consider before you start day trading, as well as some tips and tricks to help manage risk and maximise reward.

What you need to know?

For more in-depth analysis you can check the last blog post, but essentially day trading is the act of buying and selling financial instruments within a single day. Popular choices for financial instruments to day trade include the forex and stock markets, and cryptocurrency is gaining in popularity among day traders.

Factors to consider

Before you take your first steps into the world of day trading, it’s important to do as much research as you can to make sure you aren’t caught unawares by anything that happens in the process. Here are some factors to consider when drawing up plans:

What market you are trading?

As we’ve previously mentioned there are a number of markets you can day trade in, and each one will have its own benefits and drawbacks. Be sure to read up on each market to see what one seems most appealing to you- consider the liquidity and volatility of each market, as well as the trading volume of any stocks you have in mind, and think about how these will affect their viability in day trading.

What methods you plan to use?

There are also a number of different ways of interpreting data and patterns of buying and selling you can use in day trading. We covered some popular ones in our last blog post, but it’s definitely worth your time to read up on data analysis and see what methods work best for you.
The socio-economic landscape
We’re living in turbulent times, and decisions made in the socio-political landscape can have massive impacts on global markets, particularly if the market you are trading in is a more volatile one. As day trading is focused on short-term price fluctuations and analysis of data, it’s particularly important that you keep an eye on current events so you can stay ahead of shifts in the markets.

Day trading to-do list

Once you’ve done your research and you know everything you need to start day trading, it can still be a daunting prospect to get started. Here are some tips and tricks to help streamline your operations, and help make things more efficient:

Keep things organised

Day trading is all about rigorous analysis of data, and with all those facts and figures to consider it can be very easy to lose track of the trends. With day trading it’s essential that you stay on top of the data, so keeping your operations organised is essential. Making spreadsheets to keep track of your trades and trends can be a useful way to observe and anticipate market trends, as well as evaluate your performance.

Set up money management techniques

Day trading is a high risk/high reward method, and if you aren’t careful a mishap could end up with big losses. To help avoid that, there are a number of money management techniques you can deploy to minimise risk, such as establishing Stop Loss and Take Profit orders. You can find out more about money management here.

Keep a clear head

With the high risks and high rewards that day trading provides, it can be all too easy to fall into psychological traps, which could potentially result in big losses if you follow the wrong impulse. Keeping your operations organised can be a useful way to avoid making a mistake due to your emotional state, but another technique that can come in handy is setting up and maintaining a trading diary [link to Money management tips page] to systematically assess the decisions you make in day trading as you make them.

Try a demo account

One other practical thing you can do to psychologically prepare yourself for day trading is setting up a demo account- essentially, a risk-free trading simulator that allows you to have hands-on experience without the worry of learning lessons the hard way. By using a demo account, you can craft strategies and gain a familiarity for the market, which can help with building confidence- however, a demo account should be used in conjunction with the other organisational methods mentioned above, to ensure you aren’t lulled into a false sense of security.

These are the basics on day trading, but if you want a more in-depth exploration of this and many more trading types Learn 2 Earn offers bespoke courses, taught by professional traders and experts, that will guide you through your trading journey and help you start trading confidently at the highest level.

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