In this world of online business, day trading is one of the most sought-after careers now a days. The question is with so many people interested in becoming traders why only a handful of them succeed? People dive into day trading career thinking they will work comfortably from their home; they will be their own boss do whatever they want and work as little or as hard as they want and then see profits roll in but in reality, trading is a complete opposite of this mindset.
To be a successful trader you have to work day and night, have specific industry related tools and most of all have that knowledge to dissect data and predict market trend to the best of your abilities. You have to be super precise with your analysis because one wrong move could mean thousands of dollars worth of loss and the profit is just as high. It’s a high risk and high reward job, you will lose all your hair in a matter of weeks if you just jump into this profession without doing your due diligence.
What does a day trader do?
A day trader buys and sells securities all day, they do it multiple times during the day but they don’t carry any open positions to the next day. All buying and selling happens in the same day before the market closes. Day traders as the name suggests square off trading deals in the same day and they are different from Active traders who can keep and hold a position for multiple days. Day traders also use leverage to increase their intraday trade exposure.
Now to become a day trader you need to follow these steps:
Do a Self-assessment:
Trading is not an easy profession it requires you to have knowledge, skills, market awareness and a hell of a commitment to this lifestyle. You need to ask yourself; do you have a strong mathematical base? Do you have strong financial knowledge and are you aware of behavioural psychology in yourself and others? And most importantly do you have a stomach for entrepreneurship? Are you comfortable not knowing the outcome and still jumping in the deal anyway?
These are the hard-hitting questions you need to ask yourself and if you think you are the guy or girl that is perfect for this job then I would also like to point out that this job actually requires:
- Long working hours
- Continuous self-learning with no guidance
- Risk taking
- Very little break from work
- Never ending commitment to this job
The most important trait of a day trader is his mindset, if you are willing to self-learn everyday, stay motivated and take losses along the way then this could be a career for you.
YOU CAN ALSO READ : TIPS FOR MAKING A FINANCIAL PLAN FOR STARTUP BUSINESS
Arrange capital to invest:
Trading is impossible without capital; you need capital to buy those securities and then sell them at profit and keep going. No one can make profits from trade deals all the time, losses are a part of the game and they happen all the time. Day trading can be so discouraging, some days you might lose money on 8 straight deals and then make profit on the nineth and that’s just an ordinary day in the world of trading.
To handle these losses, you must have sufficient capital to sustain, so make sure you have a nice little cushion of cash tucked away for rainy trading days. If you want to do trading full time, it is recommended to have at least $100,000 in your trading account. And for beginner traders it is recommended to have at least $25,000 in your trading account at all times which means you need to have more capital than that.
Understand the Market:
Day traders need to know the market inside and out, they need to understand how the market functions. From simple details like opening, closing and holiday hours to complex details like impact of news events, margin requirements, allowable trade tools, a trader need to learn all this and more.
Setup a trading strategy:
Having a strategy before starting anything new is a great idea, a new novice trader should always have a strategy before entering the world of trading. There are two established trade strategies that they can follow, both these strategies would act as a backup of each other in case of failure or lack of opportunities. After getting better and more comfortable in the trading world one can employ more strategies that are more complex but again that will come with time.
Trading world is extremely dynamic and volatile that is why it is a high-risk high reward investment. Seemingly working strategies can make money for a long time and then stop working all of a sudden that is why one needs to keep a close eye on the effectiveness of the strategy and then change and modify as the market changes.
Practice Money Management:
Money management is one of the most important skills a trader can attain. Let’s say you have a $100,000 as capital and an excellent strategy that has about 70% success rate. How much money should you invest in the first trade? What if the first few trades are failures? Should you pivot or keep going with the same strategy?
All these questions are important and a trader should know the answer to all these questions. By managing your money, you can estimate your potential profitability which is the main goal of the trading game. Effective money management can help you win even if the success rates are much lower of your strategy.
There are many other steps and strategies I would like to talk about but these are the most important ones, so learn them well and happy trading.
