Read books and articles on trading. Consider getting mentoring from someone you have followed and who's method you feel would work with your personality and needs. Invest in your own education, not trade signals you pay for each month or expensive subscriptions—these only serve to make you reliant on someone else. Invest in yourself from the start. That way, no matter what happens you have the skills to get the job done, on your own.
The following are several basic trading strategies by which day traders attempt to make profits. In addition, some day traders also use contrarian investing strategies (more commonly seen in algorithmic trading) to trade specifically against irrational behavior from day traders using the approaches below. It is important for a trader to remain flexible and adjust techniques to match changing market conditions.
The common use of buying on margin (using borrowed funds) amplifies gains and losses, such that substantial losses or gains can occur in a very short period of time. In addition, brokers usually allow bigger margin for day traders. In the United States for example, while the initial margin required to hold a stock position overnight are 50% of the stock's value due to Regulation T, many brokers allow pattern day trader accounts to use levels as low as 25% for intraday purchases. This means a day trader with the legal minimum $25,000 in his account can buy $100,000 (4x leverage) worth of stock during the day, as long as half of those positions are exited before the market close. Because of the high risk of margin use, and of other day trading practices, a day trader will often have to exit a losing position very quickly, in order to prevent a greater, unacceptable loss, or even a disastrous loss, much larger than her original investment, or even larger than her total assets.
Article copyright 2011 by Alex Elder. Reprinted and adapted from Come Into My Trading Room with permission from John Wiley & Sons, Inc. The statements and opinions expressed in this article are those of the author. Fidelity Investments® cannot guarantee the accuracy or completeness of any statements or data. This reprint and the materials delivered with it should not be construed as an offer to sell or a solicitation of an offer to buy shares of any funds mentioned in this reprint.
Notice: Information contained herein is not and should not be construed as an offer, solicitation, or recommendation to buy or sell securities. The information has been obtained from sources we believe to be reliable; however no guarantee is made or implied with respect to its accuracy, timeliness, or completeness. Authors may own the stocks they discuss. The information and content are subject to change without notice.
The sheer volume of forex trading makes it attractive for day traders. There are multiple short-term opportunities in a trending currency pair, and an unrivalled level of liquidity to ensure opening and closing trades is quick and slick. More suited to technical analysis, there are other ways to trade foreign exchange. In addition, forex has no central market. This means traders can make trades six days a week, 24 hours a day. They present a great starting point for entry level or aspiring traders with full time jobs. Traders in Australia might be specifically interested in trading the AUD USD pair.
The ability for individuals to day trade coincided with the extreme bull market in technological issues from 1997 to early 2000, known as the dot-com bubble. From 1997 to 2000, the NASDAQ rose from 1200 to 5000. Many naive investors with little market experience made huge profits buying these stocks in the morning and selling them in the afternoon, at 400% margin rates.
Swing traders can use a wide array of technical indicators. What makes swing trading unique is that it blends several components of day trading, with the speed of position trading. Swing trading indicators are primarily used to find trends that play out between 3 and 15 trading periods. After we analyze these periods, we will be able to determine whether instances of resistance or support have occurred.
You're probably looking for deals and low prices, but stay away from penny stocks. These stocks are often illiquid, and chances of hitting a jackpot are often bleak. Many stocks trading under $5 a share become de-listed from major stock exchanges and are only tradable over-the-counter (OTC). Unless you see a real opportunity and have done your research, stay clear of these.