Why Day Trading Strategies Does a person need to become a day trader?
All investors need trading strategies, but this is particularly important for those who will become a day trader because of the unique conditions in which they are trading. In part, trading strategies are useful for making sure that day traders have a proven method for making a profit. However, it should be noted that they also reduce a day trader’s chances of being overwhelmed by their emotions by lending some much-needed structure to their day trading, which is important because even a short session fueled by out-of-control emotions rather than rational thinking can result in serious losses.
What Should You Look For?
You need to know what sort of stocks you want if you are looking to become a day trader. First, you want stocks that are highly liquid so that you will have a minimal waiting period between wanting to sell them and actually seeing them sold. Statistics-wise, this means stocks with a small difference between the price that people are asking for and the price that people are stating that they will pay as well as a small difference between the expected price at which a trade will be conducted and the actual price at which the same trade was conducted. Second, you want stocks with some volatility to them since that determines how much their prices will change over the course of a day, meaning that you cannot profit from day trading unless your stocks are volatile. However, you need to be careful because the higher the volatility, the bigger the potential profit but also the bigger the potential loss.
What Are Some Day Trading Strategies to become a day trader?
With that said, knowing what kind of stocks can be profitable for day trading doesn’t mean that you actually know which ones to buy and sell at what times, which is where day trading strategies come in. Here are some of the most common examples:
- Scalping means selling a stock as soon as it becomes profitable to do so. Although this limits the amount of profit that can be made with each trade, it also minimizes the chances of the opportunity slipping away once the stock price changes. As a result, it is a good fit for day traders who are prepared to make a lot of trades involving a lot of stocks over the course of a single day.
- Fading means selling a stock after there have been sudden upward movements in stock prices, which is done because of the assumption that the stock price has been overvalued because of excessive enthusiasm and will soon flatten as other stock-holders seek to profit from the change in stock price. This is a strategy that can result in enormous profits so long as day traders are capable of perfectly timing their sales, meaning that it is best-suited to those who are unafraid of taking risks.
- Momentum means trading in response to the latest news. For example, a day trader might hear good news about a particular company’s latest figures, choose to buy shares in its stock, wait until its stock price reaches its zenith, and then sell the shares in that stock while the selling is good. Going by momentum can be profitable, but it also requires significant time and effort to monitor the news as well as the expertise and experience needed for the right timing.
With that said, this no more than a short introduction to day trading strategies, which can as simple or as complex as day traders want them to be. In the end, each day trader has their own particular investment goals and investment requirements, meaning that they need a day trading strategy that has been tailored for them. Still, that doesn’t mean that they can’t learn from the experience of others, particularly when there is so much information that can be found out there.