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15 Secrets of successful day trading
The following are 15 Secrets of day trading
Day Trading in stock market is all about managing risk, nothing works 100% accurate.
Even if you have a trading system which generates 99% of success, there is always a certain chance and probability to lose in day trading.
Day Trading Requirement
Day trading requires whole market awareness and try to get latest updates on stocks, companies and its related news, very important is to get market direction (either positive or negative).
Day Trading Monitoring
Financial Television channels provide all latest buzz on stocks, news, markets and companies. This will really helps for day trader to enter and exit on news based stocks.
Day Trading Caution
Day trading can’t be done based on single technical charting or based on only technical software. Market awareness is must to exceed in day trading.
There is no any technique or calculation to earn in day trading.
Very importantly - Market experience is required to get success in day trading.
New comers to stock markets should be very careful, but in fact they must avoid it unless and until they gain proper knowledge.
Important Strategy to Follow by Day Trader
As you are doing day trading you have to book profits on low margins and do multiple trades because you never know when markets turns back, so book profit and get ready for another trade unless you are 100% sure of the trade and market direction.
Remember before you start your Day Trading
1. Buying and selling or selling and then buying (which are called as short selling) are two basic trades done in day trading.
2. Before you decide to do any one of the trade you have to find out the direction of the market. - It’s not possible to find this 100% accurate.
For example - Indian stock markets will open mostly based on the situation on Asian markets and Asian markets in turn will open based on USA markets.
This is not any hard and fast rule but it is observed most of the time.
Truth of Day Trading
Most of the day traders get success by avoiding over trading.
For example - If you have RS 5000 then brokerage firms provide margin on your amount, means you can trade 4 times (margin percentage varies from broker to broker) more on your amount. But if you make use of margin amount then you have to square off your trade before market closes or some brokers provide two days time. This means even if your trade goes against you, you have to square off in loss.
Now let’s see other side - If you day trade only on your amount then there is no restriction for you to square off because you are not using any margin amount provided by your broker. Now suppose if market turns back and you are in loss then you can take them in delivery and hold them as long as you wish or till that scrip goes up.
Strictly maintain Stop Loss
Strictly maintain the given stop losses. This will help you to prevent from huge loss. Suppose, for moment the share/stock what you bought falls drastically down, then you may end up with huge loss. So always maintain given stop loss.
“Stop Loss will reduce your loss”.
Down wait for huge profit in single stock
If you are getting some profit and if you notice that is not further moving up (it’s called consolidation) then you have to sell your share/stock and come out of that trade.
In this manner, you can earn small profit instead of loss then you can do another trade and again earn small profit.
Likewise if you keep earning couple of small profits in a single day then all your small profits will add up to huge profit amount in a single day.
“Get satisfied in small profit and do multiple trades”.
Always set price targets before you jump in.
If you’re buying a long position, decide in advance how much profit is acceptable as well as a stop-loss level if the trade turns against you. Then, stick by your decisions. This limits your potential loss and keeps you from being overly greedy if price spikes to an untenable level. Exception: in a strong market it’s acceptable to set a new profit goal and stop-loss level once your initial target is achieved.
Paradoxical though it may seem, successful day traders often don't trade every day. They may be in the market, at their computer, but if they don’t see any opportunities that meet their criteria they will not execute a trade that day. That’s a lot better than going against your own best judgment out of an impatient desire to “just do something.” Plan your trades, then trade your plan.
Again, you need to set a trading plan and stick to it. At Online Trading Academy, students execute live stock trades in the market under the guidance of a senior instructor until right decisions become second nature. If you’re trading on your own, impulsive behavior can be your worst enemy. Greed can keep you in a position for too long and fear can cause you to bail out too soon. Don’t expect to get rich on a single trade.
Don’t be afraid to push the “order” button.
Novice day traders often face “paralysis by analysis” because they get wrapped up in watching the candles and the Level 2 columns on their screen and can’t act quickly when opportunity presents itself. If you’re disciplined and work your plan, actually placing the order should be automatic. If you’re wrong, your stops will get you out without major damage.
Only day trade with money you can afford to lose.
Successful traders have a “little bucket” of risk capital and a “big bucket” of money they’re saving for retirement or another long-term goal. Big bucket money tends to be invested more conservatively and in longer-duration positions. It’s not absolutely forbidden to use this money occasionally for a day trade, but the odds should be very high in your favor.
Never risk too much capital on one trade.
Set a percentage of your total day trading budget (which might be anywhere from 2% to 10%, depending on how much money you have) and don’t allow the size of your position to exceed it. Otherwise, you may miss out on an even better opportunity in the market.
4.Don’t limit day trading to stocks.
Forex, futures and options are three asset classes that display volatility and liquidity just like stocks, making them ideal for day trading. And often one of them will present appealing opportunities on a day when the stock market is going nowhere.
Don’t second-guess yourself, but do learn from experience.
Every day trader has losses, so don’t kick yourself when the occasional trade doesn’t go your way. Do, however, confirm that you followed your rules-based strategy and didn’t get in or out at the wrong time.
They are not afraid to place a trade:
Fear or a lack of confidence in your trading decisions makes it hard to enter trades in the first place. You will often find yourself letting good opportunities pass by, or you are waiting for additional confirmation that the stock is going your way, which makes you enter trades too late and you end up chasing the stocks; often getting in at the end of the movement. Fear of losing money makes it harder to take losses. To much fear will either make you not take losses at all and cause significant draw downs, or it will make you take losses to soon, before the actual stop price was hit. Confidence in your ability to make good trading decisions will help you to be patient since you know that eventually there will be good opportunities. Traders with a lack of confidence tend to look for different trading strategies every time something goes wrong for them. They are therefore never able to focus on one strategy and master it. Even if you are a experienced trader you might lose some confidence once in a while. Go back to paper trading or to trading small shares in order to get yourself back on track.
Successful day traders only use risk capital for trading:
If you are day trading with all the money you have without having another income you will be way too scared in order to make any neutral decisions. There is a saying that scared money never wins. I have yet to see a trader who was able to live off a 5K trading account without any additional income.
They focus on a few strategies that suit them well:
Many traders try to implement too many strategies at once. They think they have to make money every day. The most successful traders I know only have a few strategies that they are highly successful with, sometimes only one. The goal is to find a strategy that YOU are comfortable with and to master it. This won't come overnight. Of course you need to have a look (and try) different strategies until you find something that you are comfortable with. Keep in mind that no strategy works in every market. Therefore it is normal to sit on the sidelines every once in a while. You don't have to make money every day. The key is to only trade when the odds are in your favor and to stay in the game. Once you have established a "bottom line" strategy you should slowly move on and implement other strategies.
They are patient:
This starts with patience in your learning process. Take time to trade on paper for a while. You will make mistakes and it will take time to get comfortable with your trading decisions. Please make your mistakes on paper; this will keep you in the game. If you absolutely want to trade live right away please do so with a very small amount of shares. You can make a lot of mistakes if you are trading a small amount of shares. If you use your full buying power though one blown stop can wipe you out. I have yet to see a trader (including myself) who didn't blow a stop at least once!!
Patience to wait for trading opportunities is very important too. As stated above, not every strategy works every day. You might have to wait a while to find a good trade. It can also happen that you have a losing streak. A good trader will not worry too much about that and will do something else. Sitting in front of your computer trying to make back losses is the worst thing you can do. I would strongly advise you to set maximum losses per day, week and overall. Stop trading immediately if your maximum losses are hit. Remember, as long as you stay in the game there will always be another day with new opportunities.
They are great money managers:
A good day trader will never risk more than 2% of his trading capital on a single trade. This means that if he has to take a stop, the amount of money he is wiling to lose will be no more than 2% of his capital. 2% is the absolute maximum. You should attempt to risk less than that. The reason why this is so important is that even if you are right 99% of the time you can still lose 10 times in a row. Every once in a while this might happen to you. Only if you risk little money you will be able to survive such a draw down.