Buying and selling stocks and other financial instruments can be very lucrative, but only if you have five essential but critical items in your arsenal.
If you miss even one of them, day trading stocks can easily turn into a nightmare for you. You may easily lose much of your initial capital within hours.
The following are the five basic things you need for you to be successful at day trading stocks:
1. Day trading Knowledge
It would be best if you took some time to learn how day trading works, and that is because it is a very technical economic activity. You need to know how to do a few things very well. For example, you need to know how to do fundamental and technical analysis.
You also need to know how to use the tools of the trade, in particular the charting software. It is also important you know where and how to source for the information you need to make the right calls.
You can learn most of these skills by using the free resources that you can access online. YouTube, for example, has thousands of videos that can take you through how to do specific trading tasks.
If you have the money to spend, you can also join masterclasses or even have an experienced trader become your mentor to guide you through the learning process. Also joining online trading platforms and attending physical events can help a great deal.
2. The right tools
Talking of tools, you need to acquire the right hardware and software resources for your trading activities. It would help if you had a computer, laptop or tablet that provides ample display and space to manoeuvre when studying your charts, making your calls or exiting positions.
Indeed, you should consider finding or creating a conducive environment, including a comfortable seat and desk.
You also need a reliable internet connection. You don’t want to miss a great exit point because your connection let you down when you really needed it. Of course, you also need software to chart trends in the markets. Those that provide the most basic data and features are free. For a fee, you can get more features and a more comprehensive range of data.
Of course, you need the money to start trading. The amount you need depends on how big you want to go into the market and the amount of resources you have access to.
It can never be overemphasized though that you should only invest what you can afford to lose. You ought to know that trading stocks and other financial instruments is a very risky endeavour. Many stock trading platforms such as stockbrokers can give you access to credit facilities (known as margin). Before you choose this option of funding, you should be aware that it significantly increases the risk you are exposed to.
It is also important that you start small even if you can afford to go into the market in a big way. Starting small allows you to grow at the right pace and also learn from less costly mistakes.
As a day trader, you need a lot of confidence to act in a way that will benefit you and increase your worth. Without confidence, you are bound to make very costly mistakes, and you are most likely to give up sooner than later.
Being confidence, in this case, is more than just a feeling of being sure of what you are doing. Its primary component is the capacity to act rationally. It is about using carefully sourced information to make decisions and not emotions.
That means you need to develop the habit of analyzing data before acting. You should understand well the markets in which you operate. You should always be on the lookout for information that will give you an edge.
Last but not least, you must have the time. With long term holding, all you need to do is to buy and forget about it until sometime in future. With day trading, you need to monitor and analyze the per-minute price movements of the assets you are interested in.
It is important to point out that you don’t have to be trading without days off. Indeed, day trading can be a way to diversify your investment. That means you can do it as a part-time job, however, the amount of time you are available to do it should expose you to a significant amount of opportunities.
Of course, there are now tools that can help you to passively follow the markets as you do other things. For example, you can set to receive notifications when specific stocks hit certain price points.
Before you get started with day trading, you have to make sure you have all the five things. Missing even one can make it hard for you to succeed in your stock trading strategy. A few of these can be acquired quickly, and some can take some time.