What You Need to Know Before You Begin Day Trading

Trading computers

Everyone has heard about how much money there is waiting for them in the market. However, most don’t understand how to trade, unfortunately. If you’ve thought about day trading, we can help. Here’s what you need to know before getting started.

Capital Requirements

First and foremost, we have to discuss capital requirements for day traders. When investing, there’s usually not a requirement specifying how much to invest. But, if you’re a day trader, things are quite a bit different.

Instead of investing whatever you’d like, capital requirements force your hand. You can’t make as many trades as you want unless your account has more than $25,000. Otherwise, you can only trade a few times each month.

Trading computers

This limit only applies to the US stock market, though. Traders in other countries may have different limits to consider. Plus, US traders can access Forex markets with much lower balances.

Computer Hardware

Trading computers tend to perform better than regular ones. That’s because traders need to see markets in real-time to execute strategies. Otherwise, a well-made one won’t be effective. Even a few seconds delay could derail your plan, so hardware matters.

For us, we’ve found using multiple monitors is helpful. Instead of switching between screens, you can view more than one at once. So, there’s less time wasted trying to navigate between pages. Just pull up the stock tickers on one screen and track something else on the other.

Many traders have used software to help, too. By using software, your trades will show up on the screen, highlighted in bold. These are what the software believes will be profitable.

Trading Styles

As a trader, everyone must come up with their own style of trading. Some traders aren’t afraid of risk, so they use leverage. Leveraging your account can amplify returns, but it’s a major risk as well.

When using leverage, losses can be amplified just as much as returns. So, don’t use leverage until you’ve learned the basics of trading. However, if you’re smart, leverage can massively improve your profit.

Also, figure out the timing of your trades before making them. Once they’ve gained enough, sell them to capitalize on the profit. Don’t wait until they’ve fallen in value again like many traders.

We’ve had luck using the moving average while trading. Typically, you can use more than one moving average. So, look at long-term and short-term options. Then, compare their positions to each other. If the short-term moving average falls below the long-term one, it’s bearish. When the long-term one moves above the short-term, it’s bullish.

Using Stop Losses

Another key concept as a trader is the stop loss. When executing trades, stop losses prevent you from losing too much. If something you’ve bought falls too much, your stock sells automatically. That way, your portfolio won’t be hit as hard by a downturn.

Don’t set them too high, though. Setting a stop loss can be effective if used properly. But, when they’re too high, they can trigger early, selling your assets. Then, you’ll lose anything you would’ve made if they were still a part of it.

So, figure out how much you’re willing to lose on any trade. That should be where you put the stop loss when you’re setting it.

Setting Up Limit Orders

Similar to stop losses, limit orders trigger whenever asset prices hit certain levels. However, instead of selling something, this time you’ll buy it. Create a limit order to buy an asset after it drops. So, if something has a flash crash, you’ll gain from it. Once it’s fallen in value, your limit order will trigger, buying the stock.

Again, don’t set them too high. Otherwise, they’ll trigger sooner than you want them to. At that point, you’ve already bought it. So, there’s not much you can do about it.

Conclusion

Day trading has grown quite a bit over the past several years. Now, it’s not uncommon to meet people who trade for a living. If you’d like to start down this path, it takes effort. But, as long as you’re hardworking, nothing is out of reach. Just continue expanding your knowledge, and the rest will come eventually.

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