With the markets going up and going down every day you may be thinking about whether it's a good idea to take up 'day trading', but what is it and would it be right for you?
Day trading involves buying and selling shares on the same day. It is extremely difficult to do but if successful, the rewards can be substantial.
The flipside is that it is also extremely risky which means that you could see your capital wiped out very quickly.
It's easy to focus just on the potential profits to be made but most smart traders will tell you that day trading is all about risk management. The motto should be to plan for the worst and hope for the best. Your capital is the only thing that allows you to play the day-trading game. Without it there is no opportunity to trade. Unfortunately for most first-time day traders, they only focus on return and fail to preserve the one thing that allows them to play the market and that's their capital.
You want to have specific rules for entry and exiting positions. This is so that emotion does not get involved. Day trading is less about the "I want to make a profit" mentality and more about "Has there been a trigger for an entry or exit point." It's less about emotion and more about a plan for success.
And finally you will need to use tools. If you just rely on your gut instinct to trade stock then that's no different to gambling and you'd probably do better at a casino. Day trading is all about being about to anticipate where the share price is headed and when wrong to have risk management practices in place that protect your capital.
The most popular trading tools for day trading are charting or technical analysis tools. There are hundreds of indicators that you could use. The key is to choose ones that work for you and that means testing a system that works. You can buy ready-made systems but these tend to be very expensive. There are plenty of good books and I'd suggest that you start there, test your own system and then start with paper trading to build your skills.
In terms of choosing a broker, online brokers have made day trading accessible and quick. Most orders placed online hit the market in less than a second and Bell Direct has a 2 second placement guarantee which says that if your 'at market' order doesn't hit the market in 2 seconds, it is free – you don't pay any brokerage.
With Bell Direct you can trade from as little as $15 per trade making it easier for traders to make a profit.
Happy investing!
Julia Lee Equities Analyst Bell Direct
Have you started trading with Bell Direct for just $15 a trade? Register now for free.