Day trading is often billed as a lucrative way to make fast and easy money from the comfort of your home. The average day trader makes about $80,000 a year. The best part about day trading is that you don’t necessarily have to be a financial wizard to be successful. Becoming a day trader is easy. Becoming a successful day trader is a much harder process.
But what is day trading and how can you stand to benefit from it? This useful guide has all the information you need to decide if day trading is right for you and your lifestyle.
Day trading is a type of investment strategy. It can be used when trading stocks, cryptocurrency, securities, bonds, and commodities. It can also be applied to any other form of speculative marketplace.
Day trading involves purchasing an asset and selling the asset on the same day before the markets close. Day trading is a short term investment strategy. It also limits the amount of risk an investor has in the long term.
It does this by preventing discrepancies that can occur between an asset’s closing price at the end of a trading day, and its opening price at the start of the next day. There are many different strategies and styles of day trading.
What Makes a Successful Day Trader?
Many potential investors are lured into the day trading world with the promise of easy money. These investors find out the hard way that day trading is no cakewalk. As a result, they sometimes lose everything.
To be a successful day trader you need to be willing to invest enormous amounts of time and capital. You also need to be able to read the marketplace and have some background financial knowledge.
If you start your journey as a day trader you can expect long hours, little leave time from work, and a gruelling self-learning process that many can’t stomach. You need to have good risk management strategies and marketplace awareness as well.
While day trading, your success or failure rides solely on you and your trading strategies. If you fail, there is no one else to blame. If you are successful, however, you alone get all the glory.
Cash Is King
Having sufficient investment capital is one of the most important things for day trading. When you first start you can expect to sustain heavy losses as you figure out the nuances of navigating the marketplace.
The old saying “it takes money to make money” applies here. To be successful, it is crucial that you have a buffer of cash to withstand any initial losses. Many veteran traders will tell you that the day trading world is extremely volatile.
Sometimes you can expect to lose money on multiple trades in a row before turning a profit on a big one and recovering all of your losses. If you don’t have sufficient capital to act as a cushion, you could lose everything.
Heading into the world of day trading without a sufficient bankroll is like heading into a marathon with no shoes. You might somehow pull it off and win against all odds, but chances are you will end up bloodied and broken on the side of the road.
Knowledge Is Power
A successful day trader needs to be familiar with all of the aspects of how the marketplace functions. This includes understanding all the mundane basics such as trading hours and holidays.
It also includes being able to grasp the bigger picture such as how massive geopolitical events can influence market behaviour and how small innovations or new technologies can send ripples throughout the financial world.
As a day trader, you need to be at the forefront of the economic knowledge-base. This means keeping up with any emerging trends or cutting edge technology before everyone else is aware of them.
Staying ahead of the curve is not easy, but it is well rewarded. You also need to have a broad understanding of multiple different types of marketplaces. Understanding investment banking, securities, conventional stocks, bonds, and mutual funds are all examples of things a day trader should be well versed in.
Develop and Implement a Strategy
Without a plan, you are simply flying by the seat of your pants. At this point, you might as well just take your money down to the closest casino, spin the wheel, and see what happens.
You need to develop a successful entry and exit strategy. This includes setting indicators and benchmarks for success or failure. You also need to be able to assess how well your plan is working and recalibrate it if necessary.
A successful investment strategy is what separates the wealthy from the penniless in the world of day trading. Many traders spend decades developing a good strategy. Some never get it right and end up washing-out as a result.
Warren Buffet is often credited with being one of the top financial investors in history. His strategy was simple and centred around investing in index funds. While this strategy is not applicable to day-trading, his thought process is.
The simplest solution is usually the best. The more complicated your strategy, the more can go wrong.
Just because you have access to a large pool of capital, or have sufficient background knowledge of investment and the marketplace doesn’t mean you should be reckless. When implementing a new strategy, tread lightly.
If it works, you can always repeat it with a bigger chunk of change on the line after you have already secured some returns as a buffer. By not going “all in” you save yourself the financial ruin that comes with making too aggressive of an initial investment.
Attain Your Financial Destiny
Day trading is not for everyone, but those that are successful will tell you that there are few better ways to earn a living. Being your own boss and taking your financial destiny into your own hands is an empowering experience!
Just make sure to have adequate capital and financial knowledge before trying your hand at day trading to avoid crashing and burning as a total failure.
If you want to become a day trader you first need a wide financial knowledge base. Start informing yourself today with the host of financial information available on our blog to better prepare yourself for the long economic road ahead!