But for that you need to have patience. This leads to boredom. But human mind does not like boredom. Hence you start doing day trading to jazz up your financial life. Remember DO IT ONLY IN SMALL AMOUNT. Using large amounts for day trading can destroy your finances. When you read the reports that people have lost money in the stock market, remember these are the people who have indulged themselves in the day trading.
Statutory Warning: Day trading is a risky business, so avoid it at all costs.
However, if you want to do day trading, use the following guidelines to use the day trading to your maximum advantage.
• Allocate only 3-5% of your total corpus: Of the total amount allocated for the equity investment, use only 3-5% of the funds for day trading. This is a very risky strategy and using lot of money can destroy you financially. Any loss incurred by investing a small sum of money can hurt you for some time, but will not have any major impact on your finances.
• Advanced technology does not make the task easier: Stock market tickers are flashed throughout the day on the news channels. Internet gives you access to fundamental analysis and technical information. With online trading, you can trade in stocks at any time of the day. In this technological maze, what people have forgotten is the fact that these are just tools available to make data and trading easily accessible. Ultimately, it is up to you to make correct interpretation of the data and use it to make right decision. If you fail to do that, you can suffer huge losses.
• Get a good grasp of the subject: Day trading uses terms like futures, call option, put option, delta, stop loss trigger etc. You will hear these words being used frequently. The experts will give you detailed information about various stocks using these terms. Hence you should understand them thoroughly. You should be familiar with the economic situation of the country as well as the world. Today the global markets have become interdependent. Change in the economic situation of one country can have repercussions on the stock market of the other countries. Oil prices and interest rates can have a different impact on the stocks in various sectors. Trade in large caps stocks as they have large trading volumes. They are highly liquid and there is a lot of technical information available for them. Predict the overall direction of the stock, rather than concentrating on the highs and lows. Keep a record of all your trades and analyze them. This will allow you to determine the trends followed by the stock.
• Learn when to book your losses and profits: People do not like losing money, so they do not withdraw from the market when it does not go as they want. This results in losses in day trading. If you have taken the wrong call or if the market is not up to your expectation, dispose off the stock(s) and get out of the market. Do not hang on to the stock(s) hoping that the market will bounce back. The best tactic is fixing the limit of the loss that you can comfortably handle, before investing your money. Stop loss is the main criteria for successful day trader. The crucial factor is to minimize your losses and not maximize your profits. If you are losing money in the market, do not wait for the situation to worsen, but leave the market immediately. Avoid greed. Book profits after a certain time. Making many small gains is far realistic than making a couple of big gains. Go along with the market flow as the markets are quite illogical in the short-term. Use the basic principles of profit-loss booking. Maintain discipline and do not be emotional. Keep your cool irrespective of your profits and losses. No two persons owning the same set of stocks and information will earn the same quantity of money. Your mental makeup plays a major role in determining your success or failure.
• Stay away from overtrading: Do not make the same mistake of overtrading as is done by many people. Overtrading happens because these transactions are done by paying a marginal amount, rather than full value. Do not let these low margins fool you into thinking you can trade as much as you want. Ensure the total value is well within your means. It is not necessary to trade daily, as the good trading opportunities do not come daily. Doing 2-3 good trades in a month is enough. Sometimes, you may lose out on good opportunities, but do not worry. You will get another shot to enter the market. Make your trading easily manageable by focusing on 2-3 quality stocks. As you develop a feel for these stocks, you will learn to do better trading.
I have got this post from one of the trading forums and thought that I should share this info with all of you.Credit goes to original writer.
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