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Daytrading is the practice of buying and selling stocks on the same day. It is great in that it promises a lot of large, immediate profits through the use of leverage. However, it can also be equally detrimental for inexperienced traders who do not have the basic knowledge needed to make safe transactions. If you are an investor looking to start daytrading, take each of the following steps carefully and learn how to daytrade successfully.
Start Early
Before you begin, you should be aware that the time in which you start trading can make a big difference in your potential profits. The optimal time for trading in the stock market is usually within the first 30 to 45 minutes of it opening. For EST, that means somewhere between 9:30am and 10:30am. A lot of traders make all of their profits from just this time-frame, so be diligent and make sure you are getting into the market early. Even if you do not make any trades, it is equally important to observe which stocks are moving, and which have high stock prices. This will help you identify the most worthwhile investments. Preparation is key in learning how to daytrade. Do not neglect this initial step.
Decide On A Trading Strategy
All daytrading is done within a single day, but there are different strategies you can use to conduct your business. Scalping is the most common daytrading strategy. This method involves selling your stocks immediately after they become profitable. This ensures that you are always taking advantage of profitability. However, it can somewhat limit your potential gains. Momentum-based strategy on the other hand, involves following trends and making transactions based on news releases or sudden upticks in volume. You simply look for signs of an increase in profitability and sell if the volume starts decreasing. Whichever strategy you choose will have an impact on how you daytrade, as is the case with small cap stock investments as well, so be sure to understand each trading strategy thoroughly.
Choose A Trading Window
One of the lesser known tactics for effective day trading is to trade for just one or two hours. This is where you will see the most returns per hour. It is advisable that you do not exceed the two hour mark. Trading for two hours or less is recommended by many experience day traders and investors. This will give you the highest return per hour, so it is important to keep in mind.
Find A Good Daytrading Website
One of the advantages of daytrading is that it can be done in the comfort of working from your own home. All you need is a computer and internet access. The primary criteria you want to be looking out for when choosing a website is trade rates. Most sites are going to be charging you per transaction. You will want to make sure that the costs are low enough for you to make a profit. You never want to be making trades that end up not being profitable because the transaction costs ate away at your returns. Find a low cost daytrading website for the best place to buy stocks online, and you will be one step closer to successful daytrading.
Choose A Stock And Start Buy/Selling
Once you have your timing, strategy and website prepared, you can finally start trading stocks. All you need to do is decide on which stocks you want to purchase. There are a number of ways to go about this. You can use the momentum strategy and simply look for stocks that are trading in high volume. Intuit stock is good example of a high trading volume security. An alternative to this would be to stick to a single company that you believe in and only trade stocks with that company. This will eliminate the need for prior research as you will already possess the necessary knowledge. It will take a lot of patience in dealing with the ups and downs of a single company. However, you will gain a strong enough understanding of the particular company, that you will be able to formulate unique strategies around their movements. Once you understand how you want to go about choosing your stocks for trading, you will have learned the basics needed to know how to daytrade.
Daytrading is a very volatile practice that can result in major profits and losses in a relatively short amount of time. Because of the single-day constraint inherent in daytrading, you need to be prepared and have the knowledge necessary to make proper decisions on the fly. Follow the advice given in this post, and you will gain an understanding of how to daytrade in no time.
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