Day trading requires a lot of courage and knowledge of the capital markets. By being completely aware of the things happening in the financial world, you can trade in securities smartly, and get unbelievable returns on your investments. Day trading or intraday trading is considered to be more challenging than buying and selling shares over a longer period due to the volatility in the market in a single day session. There are a number of things which a person needs to get acquainted with before he becomes a good day trader of stocks.
Analyze the Market Trend
All those who wish to know about day trading stocks should first concentrate on analyzing the market trend. Try and compare the current market trend with the one prevalent a few trading sessions ago. Also, compare it with the situation in the global markets to find sectors/potential stocks that can help you get decent returns. Correct analysis of market trends is extremely useful in day trading activity.
Monitor Stock Movements
Monitoring stock movements is surely an important step in successful day trading stocks. Stock market movements can be a bit unpredictable and with good observation and experience, you will be able to predict stock prices through the use of valuation ratios. This will help you in stock selection process greatly.
Technical analysis is of prime importance when indulging in intraday trading. With the help of monitored stock movements, you can plot a chart which is known as the technical chart in the field of capital markets. You can also refer to the ready online technical charts on websites of stock broking firms before you take any decision to buy or sell stocks. Technical analysis is useful in understanding the support and resistance points for particular stocks.
Set Intraday Price Targets
You must understand the importance of fixing intraday price targets. All stocks, especially mid cap and penny stocks, can show huge fluctuations in the course of daily trading. So, it is advisable to lock your profits at the right time and get out of the stocks. Not doing so can result in hefty losses which can affect the confidence of day traders. There are many traders who have to sit out of the market for years because of heavy losses. So, take care and avoid falling into such situations.
Volume analysis is essential for a stock trader involved in day trading. By studying the volumes being traded on different counters, stocks can be traded with more accuracy. Volume study is useful to know the investor interest in a particular scrip.
Stop losses are a must for all traders in the market. By fixing stop losses at the right levels, you can easily lock your profits and sell the stock on the same day. The money can be used to buy stock in the next trading session.
Day Trading Software
- The day trading software is connected to your stock broker’s line and the stock exchange, on which you will be trading securities on an intraday basis.
- The programming of the day trading software is done by taking into consideration the guidance and rules of the US Securities and Exchange Commission.
- Data collection is the primary function of the day trading software. Because of the data collection, you can get all figures about stock values and tips for investing.
- Charting of stock and share values helps you cut your time and efforts for stock research.
- Last but not the least, day trading software is useful for placing buy and sell orders with your broker.
The following day trading examples will help you understand which action you should take in different situations:
The stock market opens with huge gains. Stocks of all sectors are up.
- Go long in fundamentally strong stocks with high market capitalization.
- Have stop-loss just below your purchase price.
- Avoid mid cap and small cap stocks as the focus of major market players is on large stocks in a climbing market
The stock market opens flat. There is hardly any significant movement on the upside as well as the downside.
- Wait for some action to happen. Still, be more bullish on large caps.
- Check counters with rising volumes and take positions at day lows with suitable stop losses.
- Keep an eye on financial news as it can give direction to the market.
- Trade with low amounts in such situations when the trend of the market is not clear.
The stock market opens with a huge fall. Most stocks are hitting new intraday lows.
- Immediately go short in fundamentally weak stocks. Going short means selling at higher levels and then buying the stocks at lower levels again to pocket the difference.
- Have a stop-loss above your purchase price, this time to deal with a situation in which stocks start moving up instead of going down.
- Going long would not be much profitable and so, avoid such situations on such a day when overall market sentiment is negative.
Whether you are trading for a living or just purchasing stocks for a short term, quick thinking and having the ability to take fast decisions is a must. You will be able to make great profits after gaining good experience in the markets.