Thinking of making some cash in the day trading world? There’s a lot to learn before you can jump straight in. Just like starting a new career, the more prepared you are from day one, the more likely it is that you’ll see success. Although day trading can seem like an exciting concept from the outside, it comes with many different challenges that you’ll need to consider. To make sure that you get started on the right foot, we’ve put together these quick tips on managing risk, deciding what to trade, and more!
Deciding What to Trade
The first thing you’ll need to do when you’re learning how to day trade, is decide what you want to trade. There’s a good chance you’ll already have a market in mind that you’re interested in. Some of the major markets include Forex, Stocks, and Futures. For instance, Stocks are shares of businesses that you want to be a part of. On the other hand, in the Forex market, you trade currencies. There’s no ultimate market that’s more likely to make you money than they others. Instead, success in day trading comes down to figuring out what you want to trade, and how much of a budget you have. The Forex market generally requires the least capital to get started.
Knowing When to Day Trade
No matter whether you’re a beginner or a pro, your life as a day trader will need to be centered around consistency if you want to accomplish great things. The best way to generate a consistent day trading strategy is to trade during the same hours every day. Some day traders trade for whole days at a time, whereas others prefer to stick to two or three hours each day.
The times you choose to trade will depend on what you’re trading. For instance:
- Day trading futures is best done around the opening time, between 8:30 am and 11 am EST
- Day trading in stocks is best between 9:30 am and 11:30 am EST
- The Forex market sees the most volatility between 12:00 am and 3 pm EST
Managing your Risk in Day Trading
Finally, once you’ve picked a market, and you know which times of day are best for making the most money, you’ll need to think about how you’re going to control your risk levels. There’s always risk involved with any kind of trading, but there are things you can do to keep possible problems to a minimum. For instance, the first thing you need to do is understand what “trade risk” is. Trade risk is the amount you’re willing to risk in any given trade. Usually, it’s best to stick with a trade risk of less than 1% of your capital on each trade. You can maintain this risk level by choosing an entry point and establishing a “stop loss” which pulls you out of the trade if it starts to move in the wrong direction. Your risk will also be dictated by how significant the position you take is in the trading environment. This means you’ll need to learn how to choose the right trade portion size.