Day Trading for Beginners

By: Larry Haywood
Up until recently, "day trading" was a practice that was shunned by Wall Street’s big boys. Nowadays, it's become much more popular and is a common practice amongst folks of all ages and financial trading backgrounds. Day trading, as the name implies, is when you buy and sell financial investments during the day and settle all your outstanding positions prior to the market closing. The main goal is to make fast profits from any price increases or decreases that happen during a single day of trading.

When the stock market closes down, any news that is put out later on can bear on the opening price of a financial instrument on the next trading day. From a strategical standpoint, day trading brings down the risk of incurring a loss overnight due to differences between an opening price and the previous day’s ending price. Stocks, options, futures, and currencies are the most frequently day traded financial instruments.

The most significant thing that a beginner needs to know about day trading is that while it can be highly profitable, it's also very risky. Modern statistics indicate that 70-90% of all day traders incur losses in their trades. These statistics are nearly as high as those affiliated with losses from gambling, and are a clear-cut indication that day trading isn't meant for amateurs who hope to "strike it rich" in a short period of time.

Really, there are very few individual investors who have the time, money, and personality required to deal with the losses of day trading.

If you're seriously thinking about becoming a day trader, here is some basic advice about the practice that could help you along:

Funds needed. According to U.S. law, you'll need at the least $25,000 to day trade stocks (more than 8 roundtrip trades in a single calendar week). To day trade currencies, you only need a few hundred bucks. Because of the smaller startup capital requirement, it might be wise to start with trading currencies if you're a novice. Additionally, trading currencies is also a great deal simpler than trading stocks since you only have a fixed amount of currencies that you can decide to trade.

Sustaining losses. The majority of new day traders will incur terrible losses in their first few months. That's how come so many of them give up before they even begin to make money. Once you embark upon day trading, be sure you only utilize money that you are able to lose. It's a very bad idea to use money that's needed for things such as your mortgage payments, your life insurance policy, or your every day living expenses.

Limiting your losses. Among the biggest causes why day traders lose money is because they don't know how to restrict their losses. There's no particular formula on when and how to limit your losses, but perhaps this scenario could help you interpret what normally happens. An unskilled day trader purchases a stock and the price of the stock instantly begins falling. The day trader chooses to wait because he is confident the price will come back up again. The stock’s price continues to go down during the day, and the day trader kicks himself for not having cut his losses sooner. Upon market closing time, he assures himself he has no option but to hold on to the stock. In the evening, bad news about the stock is brought out, making the opening price of the stock to spiral down even more. Our day trader is now a good deal less wealthier than he would have been had he cut his losses when the stock first started dropping.

Investment
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 

» More on Investment
 



Share this article :
Click to see more related articles