10 Day Trading Strategies for Beginners
Knowledge Is Power
In addition to knowledge of day trading procedures, day traders need to keep up on the latest stock market news and events that affect stocks. This can include the Federal Reserve System's interest rate plans, leading indicator announcements, and other economic, business, and financial news.
So, do your homework. Make a wish list of stocks you'd like to trade. Keep yourself informed about the selected companies, their stocks, and general markets. Scan business news and bookmark reliable online news outlets.
Set Aside Funds
Assess and commit to the amount of capital you're willing to risk on each trade. Many successful day traders risk less than 1% to 2% of their accounts per trade. If you have a $40,000 trading account and are willing to risk 0.5% of your capital on each trade, your maximum loss per trade is $200 (0.5% x $40,000).
Earmark a surplus amount of funds you can trade with and are prepared to lose.
Start Small
As a beginner, focus on a maximum of one to two stocks during a session. Tracking and finding opportunities is easier with just a few stocks. Recently, it has become increasingly common to trade fractional shares. That lets you specify smaller dollar amounts that you wish to invest.
This means that if Amazon shares are trading at $3,400, many brokers will now let you purchase a fractional share for an amount that can be as low as $25, or less than 1% of a full Amazon share.
Avoid Penny Stocks
You're probably looking for deals and low prices but stay away from penny stocks. These stocks are often illiquid and the chances of hitting the jackpot with them are often bleak.
Many stocks trading under $5 a share become delisted from major stock exchanges and are only tradable over-the-counter (OTC). Unless you see a real opportunity and have done your research, steer clear of these.
Time Those Trades
Many orders placed by investors and traders begin to execute as soon as the markets open in the morning, which contributes to price volatility. A seasoned player may be able to recognize patterns at the open and time orders to make profits. For beginners, though, it may be better to read the market without making any moves for the first 15 to 20 minutes.
The middle hours are usually less volatile. The movement begins to pick up again toward the closing bell. Though the rush hours offer opportunities, it’s safer for beginners to avoid them at first.
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