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Tags: finance, day trading, your day trading strategy
 Imagine waking up in the morning turning on your computer and start working right from the convenience of your own bedroom. And with a few clicks of the mouse buying and selling stocks online you can make a pretty penny, or even more. Sounds too good to be true? Not necessarily.
It is possible when you do day trading. However, it's not one hundred percent all rosy and bright and there are risks involved, especially when dealing with the highly volatile stock market. Understanding and setting your day trading strategy may just keep you from losing the shirt off your back.
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Before we talk about strategy lets start with a few rules. The most important rule to know is that day trading is not a game. It hasn’t been a game and it will not be a game. Day trading is a business that deals with stock trading and like any investment it comes with its own share of risks.
At the same time never ever play with money that you can’t ill-afford to lose. This means that if the money is earmarked for your living expenses don’t use it. And also don’t forget, there’s no such thing as easy when it comes to day trading. Be wary of those insider information or people who say they can make you easy money.
Easy may often equate to illegal—not good. Ok now that we have those rules out of the way let’s talk strategy. Let’s start with your day trading entry strategy. This involves figuring out which stocks to trade in. Look for both liquidity and volatility. The more liquid the stock the easier for you to enter or exit it once a good price is achieved.
And the higher its volatility level the bigger the profit which also means the bigger the loss should it turn the other way. Once you’ve decided upon which stocks to trade in you then need to set your day trading entry and exit signals. These signals will basically tell you when you should get into a position or when you should get out of it.
An entry signal has to be as specific and as objective as you can make it and includes conditions that must be met before you enter a trade. So you can say that you will only enter a trade if the stock price matches the lowest price in the past 30 minutes.
The exit signal is the same. You set the conditions when you should get out of the trade—either when you have reached a certain level of profit or if your stop-loss condition is met. A stop-loss is basically an order telling you when to buy or sell in order to minimize your loss and has both a physical and mental aspect to it.
For example you can put a stop-loss order to sell if the stock price goes down by 15% below purchase price. Thus, you’re limiting your loss to only 15%. You can set your stop-loss to either per trade losses or total losses for the day. Once you have that all figured out, make sure you also have a good day trading money management system.
A good system will not only manage the risks and protect you from loss but will also protect whatever profit you gain. Remember, any gain you may make is still unrealized profit until you cash it out. Having a good money management plan will help you realize the profit with the minimal of losses—conserving the value of your account so that you actually make money.
Day trading is not something you can master overnight. It takes practice and patience and the mental and financial strength to deal with setbacks. While the strategies are not a guarantee it will, however, at least make you a better trader and improve your chances of winning.
About the author
The author of this article Rick Goldfeller is a successful underground Financial Analyst who has been advising and coaching individuals for many years. Rick recently published a book on how to manage your money and attract Wealth and Financial Freedom. More info on his Finance Planning course is available HERE.
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