Steps to Becoming a Day Trader

Steps to Becoming a Day Trader

Traditionally, people purchase stocks, bonds or other equities with the thought that they will hold them for months or years. However, some people choose to buy and sell a stock or other equity within a matter of minutes or hours. This is referred to as day trading, and it can be a lucrative career path when done correctly. What are some of the steps to becoming a day trader?

Understand the Risks of Being a Day Trader

If you don’t know what you are doing, day trading may be akin to gambling. It can also be an easy way to lose hundreds or thousands of dollars in a matter of days. Those who trade on margin could actually lose more than what they originally had in their account. Therefore, you should never trade with money that you can’t afford to lose. 

Learn as Much as Possible About the Market

There is a lot to know about the stock market and how it moves if you are going to day trade. For instance, you need to know when the markets are most active and what to look for when determining if a market is going to go up or down. It is also important to have a plan in place to handle your emotions on days when stocks increase or decrease in value quickly. 

Do You Have Skills That Can Be Useful as a Trader?

There are many skills or other attributes that may help you be a better trader. For instance, you may have a personality that allows you to stay calm under pressure. If you are good at spotting patterns, that may also be helpful in increasing the odds of being a successful trader. Having previous experience investing in the market or working in an industry such as oil or gold mining may help you better understand how to predict market movements. 

Create a Trade Plan

It is important that you have a plan before you make your first investment. Proper planning may include creating rules for entering a trade as well as exiting a trade. You may also want to limit yourself to trading one or two markets at a time as you learn how to trade.

Finally, make sure that you have rules relating to how much you plan to spend on a given trade. Ideally, you won’t open a position that is more than 2 percent of your account balance. Having a plan and sticking to it will reduce the odds that you make a trade based on emotion, which is an easy way to make a bad trade or make a bad trade worse.

How Will You Fund Your Account?

Generally speaking, you should fund your account with money in a checking or savings account. While it may seem tempting to use car title loans to get your risk capital, this could only make your financial situation worse if you aren’t profitable as a trader.

Day trading can be an effective way to make your own hours and make a living doing something that you enjoy. By creating a trade plan and learning as much as possible before you make your first live trade, you increase the odds of being profitable. This makes it easier to ride out any losing streaks that you may have.