Publication date: July 5, 2024
Day trading is the ideal way of trading for many people and therefore very popular.
Begin your day with a clean slate, entering positions as the day progresses and closing them all before the day ends. So you end the day without positions. To become and remain a successful day trader you have to fulfill several requirements. The perfect picture is not for everyone! Statistics show that the majority of beginning-day traders are not successful and quit.
Day trading is known as the most difficult way of trading. This is because it is more difficult to estimate and react to short-term prices than it is to estimate long-term prices.
Besides the hard rules we mention below, it is of great importance to be successful that you are mentally strong and that you are therefore always able to execute your rules (trading rules) consistently. Are you mentally rock solid and want to become a day trader? Then follow the recommendations below first. Trading is not a game so prepare well!
Essential Steps for Successful Day Trading:
1. Study: Understand the basics of financial markets, technical analysis and trading strategies before you begin.
2. Develop a trading plan: Have a clear plan that includes your trading goals, risk tolerance and strategies for entry and exit points.
3. Use a demo account: Make lots of mistakes first and get lots of flying hours. Practice trading with a demo account before risking real money to build your skills and confidence.
4. Start small: Start with a small amount of capital to minimize risk as you learn.
5. Set stop-loss orders: use stop-loss orders to limit potential losses and protect your capital.
6. Stay informed: stay abreast of market news and trends that may affect the stocks you trade.
7. Maintain discipline: stick to your trading plan and avoid emotional decision-making.
8. Keep records: keep a trading journal to track your trades, including the rationale behind them and the results.
9. Manage risk: risk only a small percentage of your trading capital on a single trade (for example, 1-2%). Use modest leverage (maximum 4) and only trade products you are familiar with and that have high liquidity.
10. Continuous learning: The market is evolving, so constantly update your knowledge and strategies. But also be careful not to change systems every week.
Avoid the common mistakes:
1. Don't overtrade: avoid too many trades in a short period, which can lead to high transaction costs and emotional exhaustion.
2. Don't trade without a plan: impulsive trading without a strategy can lead to significant losses.
3. Don't ignore risk management: Failure to manage risk can quickly deplete your trading capital.
4. Don't chase losses: Trying to recover losses by executing aggressive trades can lead to further losses. common mistake!
5. Don't rely solely on tips: Base your trades on your research and analysis rather than on tips from others.
6. Don't trade with money you can't lose: Make sure the money you use to trade is not needed for essential expenses.
7. Don't neglect your health: Day trading can be stressful; Take breaks and maintain a healthy lifestyle.
8. Don't be overconfident: Even successful trades can lead to overconfidence which can result in risky decisions.
9. Don't ignore fees and taxes: Keep in mind transaction costs and tax implications, which can affect your net profit.
10. Don't trade unsupervised: Keep an eye on the market during trading hours to react to sudden changes.
Traders think in percentages and not cents. Everything is relative. If a loss of a few hundred euros makes you nervous while you are trading with thousands of euros, you are not suitable.
Analysis techniques
In day trading, several analysis techniques are widely used to estimate market movements and make profitable trading decisions. Here are the most commonly used analysis techniques that are available in almost every trading platform and that you can practice within the demo account.
- Candlestick patterns: This involves analyzing candlestick charts to identify patterns that may indicate potential market moves, such as doji, hammer, and engulfing patterns.
- Moving averages: Averages such as the Simple Moving Average (SMA) and the Exponential Moving Average (EMA) are used to identify trends and to get signals for entry and exit points.
- Relative Strength Index (RSI): This indicator measures the speed and change of price fluctuations and helps to identify overbought or oversold conditions.
- MACD (Moving Average Convergence Divergence): This tool helps traders identify changes in the strength, direction, momentum, and duration of a trend in a stock price.
- Bollinger bands: These are used to measure volatility and help identify overbought or oversold conditions.
- Volume analysis: Analyzing trading volume can help confirm the strength of a price movement and identify potential reversals.
- Price action trading: this involves trading based on the movements of the price itself, without using indicators. Traders look at price levels, trend lines, and support and resistance levels to make trading decisions.
Other commonly used tools
- Chart patterns: Patterns such; as head and shoulders, double tops and bottoms, and flags are used to predict market movements.
- Fibonacci retracement levels: These are used to identify potential support and resistance levels based on the Fibonacci sequence.
- Trendlines and channels: Draw trendlines and channels to identify market direction and potential reversals.
- VWAP (Volume Weighted Average Price): An indicator that shows the average price level based on volume and price, often used by institutional traders.
Many commonly used products
Day trading can be fine with stocks but then you can only capitalize on a rise in the price. Moreover, you cannot apply leverage. Novice day traders are recommended to start with shares.
Are you further into the matter and fully aware of the possibilities and risks of leverage and are familiar with going short? Then the world of derivatives opens up.
This is only for experienced traders: many traders use futures and CFDs. These tools offer a way to effectively control risk and boost your profits. Again, this is only for traders who are experienced and skilled. Always choose markets where there is a lot of trading (high liquidity) such as the major stock indices like the German DAX or the Dow Jones, Nasdaq, and S&P500 in the US.
Conclusion
Day trading is ideal but only successful for people who are mentally fit and willing to prepare optimally. You need to learn everything from analysis, products, and especially risk management.
This matter is so vast and carries too far for this article but, start by taking a course and studying the many good websites with information on technical analysis and similar resources. Then do a lot of flying hours and learn from your mistakes. If you follow and pass everything, you can earn an excellent income from trading in a fine way.
Success!
Disclaimer: Investing involves risk. Our analysts are not financial advisors. Always consult an advisor when making financial decisions. The information and tips provided on this website are based on our analysts' own insights and experiences. Therefore, they are for educational purposes only.
