You’ve heard your friends, co-workers, and relatives talk about how much money they’ve been making while trading the stock markets. It seems unbelievable to you. Perhaps they’re exaggerating? Why would anybody want to risk money on the day trading at a time like this? Yet, people are doing it, and many of these traders are really successful, or so it seems.
Sure, you want in on the action. But you’ve got to play your cards right. Stock trading is not gambling in the expectation of a lucky outcome. You worked hard for whatever it is that you have, now it’s time to leverage your capital to make it work for you. In today’s article, we’re going to explore 5 trading tips that you can immediately put to use.
5 Simple Day Trading Tips for Beginners
As a new trader on the scene, you’re going to be confronted with lots of opportunities. It’s important to be able to identify them in a timely fashion and act upon them with compunction. As you’re about to learn, timing is critically important with day trading.
We begin our day trading for dummies guide with an exploration of your chosen trading platform.
1. Pick A Reputable Trading Platform
In the world of day trading, there are plenty of trading platforms to choose from. These include E*TRADE, Fidelity, Charles Schwab, Robinhood, StocksToTrade, and a host of others. Your choice of the trading platform must suit your trading preferences, budget, and financial instrument requirements.
For example, if you are going to start trading penny stocks you certainly don’t want to be saddled with high fees, commissions, monthly charges, hidden costs, et cetera. Your best bet is a low-cost trading platform or a no-cost trading platform that makes its money on the spread.
It would be disingenuous to assign a specific trading platform to all traders since everyone’s needs are different. However, it’s worth assessing what each trading platform offers you in terms of resources. Demo trading accounts are particularly useful since you can paper trade with zero risks of loss. Other options such as stock screeners can help you pick stocks too. Look around, do your research, and try to source objective reviews.
2. Start with a Small Number of Stocks
As a new day trader, you may feel like you are in uncharted territory. But that’s needn’t be the case. You have multiple options when it comes to picking stocks. You can start with stocks you’re already familiar with – brands name like Apple, Microsoft, Google, Tesla, Caterpillar, Ford, Boeing et cetera. Conduct a little research. Is there any big news with these companies? Earnings reports? Do earnings beats or earnings miss? How about new product releases?
Paper trading is particularly useful at this point. If you believe that a stock is likely to rise in price following a new product launch, or an upgrade, or an innovation, or an earnings beat, you may wish to go long on that stock in expectation of an ROI. If you believe that a company is going to fall short of earnings expectations, you may wish to short that stock or adopt a bearish perspective. Take a position based on your research and understanding of the stock.
If the trade goes in your favor, pat yourself on the back and understand the reasons why it happened. If the trade moves in the opposite direction, make a note of that in a logbook. Understand the reasons why the trade didn’t perform as expected, and see if you can implement those lessons learned in future trades. Again, paper trading is the way to go in the early stages. You have nothing to lose, and lots to gain.
3. Use Resources Available to You
There are plenty of resources out there with trading platforms and brokerages, and well beyond. It is highly recommended for new day traders to use charts and graphs as often as possible. There is no substitute for actually getting a visual of the performance of a stock. You can see variance about the mean, you can see bullishness (rising prices from left to right), or bearishness (falling prices from left to right). Remember, in stocks trading the trend is your friend.
Once you become familiar with reading charts and graphs, you can start to play around with the technical indicators that are available in these charts. There are momentum indicators, moving averages, and indices that are particularly useful. Bollinger Bands, RSI, short-term moving averages, long-term moving averages, Ichimoku Cloud, and others will ultimately help you to make informed day trading decisions.
4. Try Penny Stocks Rather Than Blue-Chip Stocks
Sure, you’re probably well familiar with Intel, Samsung, Comcast, Disney, Coca-Cola, PepsiCo, and a wealth of other stocks. But the problem with these stocks is that they are already mature.
Prices may rise, but the price increases are negligible for day trading purposes unless you are using substantial leverage which is strongly advised against. You’re better off picking penny stocks. These are stocks that are priced at $5 or less (that’s the official SEC definition), and they typically trade OTC (over-the-counter) or as pink sheets.
With penny stocks, any major news can generate extreme volatility. These are generally illiquid stocks that may not move at all in the absence of earnings reports, acquisitions, mergers, product releases, or extraordinary developments.
If a penny stock is in the news, you want to get in on the ground floor and ride the elevator all the way to the top. It’s not unheard of for a penny stock to rise multiple times its value during a trading session. That hardly ever happens with blue-chip stocks.
As a penny stocks trader, you can choose between different tiered penny stocks, based on your risk preference, and the viability of the stock. It’s probably a good idea to start with penny stocks priced under $1, but trip-zero stocks should be avoided since there is a very little movement with unknown stocks.
A word of caution when trading penny stocks – time your trades well. Don’t get greedy. Set exit points and close out the trades. It’s not advised to carry trades over from one day to the next. You simply don’t know what will happen in between trading sessions.
5. Never Get Emotionally Invested in Day Trading
Since this is your first-time day trading, it’s important that you read this tip last, so that it becomes the first tip you remember when you begin. If stock investments are likened to marriages or long-term relationships, day trading should be likened to a one-night stand. You are here to make quick money (if all the stars align), and get out. Think of it like ‘Wham Bang thank you Maam or Sam.’ That’s it!
Don’t get connected to the stocks, hoping that if you hold onto them and show sympathy, somehow they will reciprocate and show you favorable returns. Time your trades. Set exit price points. Stick to the plan. Even if you make a small percentage profit on every penny stock that you trade, over time it all adds up. Study up on your day trading methodology, fine-tune it where necessary, and execute your trades with clinical precision.
As you become more accustomed to day trading, you will find it extremely beneficial to use auto trading resources to execute buy and sell orders without your active, real-time engagement. It becomes incredibly difficult to manage scores of penny stocks at the same time, particularly when market volatility is on the rise.
And there you have it, folks! 5 important tips that you need to know before you start day trading for a living. These tips are designed to get you in the right frame of mind. It begins with a reputable, appropriate trading platform, and it continues with the acquisition of knowledge and experience over time.