It is a near certainty that you have asked yourself if you have what it takes to swim with the sharks and get into day trading. But what is it? You’ve seen the archetypal characters that appear in television dramas – starched oxford shirts, pristine, vibrant suits, and perfectly positioned accessories: the immaculate watch, the perfectly folded pocket square. These guys exude sleaze, but they are symbolic of something that we all yearn for: complete financial freedom.
In real life, day traders are a whole different species than these oddly immaculate creatures who grace the silver screen, often as the killer in a cop drama or an entitled customer at the register. Real day traders are smart, savvy, and subdued; they are statisticians and number crunchers. They don’t flaunt their cash – they are too busy making more of it!
Day trading is simply the practice of buying and selling commodities at short intervals, typically more than one trade per day. Often this will include the movement of a single stock or currency into and back out of a trader’s portfolio as the price continues to fluctuate throughout the day, but not always.
Pattern day trading requires one to buy and sell the same stock or commodity within the same day, but traders aim to invest and divest themselves in a variety of options over the course of a normal trading day – with the added freedom to sell off recently bought items during the same trading period. The primary difference here is the frequency of trades, a day trader does the same thing you do with your long term stock investments, just faster. Day traders operate in all markets, and dipping your foot into the forex market is likely the best place to begin, considering the lofty $25,000 minimum that you must maintain in stock holdings to participate in day trading as a stock investor.
In order to day trade successfully, it is critically important to develop a day trading strategy that will withstand the test of time and the market itself. Most investors recommend utilizing a seemingly meager 1% of your portfolio as an upper boundary on any given trade. While this may seem like an overly conservative approach to what should be a fast paced, exciting game of chance, it is anything but.
Traders who approach the daily march of the market with a freewheeling, fast and loose attitude are on a collision course with failure. By only activating a tiny portion of your investment cash, you can make reasoned decisions on what and when to buy, and you only risk that small portion of your money. In the event of a loss – and this is inevitable – you are not taking huge hits to your principle investment. The pros aim for a success rate that only rises to about 50%, after all.
Only leveraging a small amount of your capital has a secondary effect that proves helpful as well. When investing in companies that we personally like we tend to develop an optimistic view of the stock’s potential. While nearly all investors have heard the old adage, ‘invest in companies that you personally use,’ it is also important to remember to never fall in love with your investments, so to speak. Anytime an investor develops an attachment to part of his or her portfolio they are dooming themselves to failure down the road. Maintaining a broad portfolio of smaller investments helps keep you objective about each commodity’s potential, and helping you to buy and sell them at the opportune moment without reservations that spark inaction.
Day trading is much easier that you may have been led to believe. It is accessible in a variety of forms and to nearly every investor. Simply applying yourself to developing a strategy to increase trading volume will help you net greater investment profits that may someday grow into an exciting and fulfilling career that puts you directly in control of your finances.