As the name itself suggests, 'Day Trading' is all about purchasing and selling securities over the course of a single day to gain profit from the ups and downs that market indices and security prices go through the hours of trading. Day traders mostly deal in the foreign exchange market and the stock market, which are known for their inherent volatility. They deal through accounts opened with stock market traders and forex traders. The most successful day traders are the ones backed by financial institutions, who have ready access to data and information sources.
Information and news are the vital ingredients which help day traders decide how a stock price is going to respond. To capitalize on small changes in prices of stocks and currencies, day traders buy and sell them in huge volumes, to magnify the profit. In the process, they create an influx of liquidity in the market. Day trading is highly risky and most of the inexperienced traders will lose a large amount of money, if they rely on pure speculation to predict the market behavior. In the following lines, I shall expound the basic steps to become a day trader.
How to Become a Day Trader?
One of the biggest problems with day trading is the high amount of risk involved in losing your money. It is a business that will test your nerves and patience to the hilt as you have to be constantly in front of your trading terminal, absorbing and processing information, while making split second buying and selling decisions. It is a hectic job which requires a lot of skill. Day trading is not an advisable course of action for stock market beginners. It is an art that is best practiced by pros who have had years of experience. Here are the steps to becoming a day trader.
Get Your Basics Right
First and foremost, you must know the working of the stock and forex markets. Get the stock trading and forex trading basics right. Learn how the whole process of trading works and understand how the market forces work to shape the destiny of stock prices and businesses. Mock trading, that is trading without putting in actual money is one of the best ways of learning the ropes. Mock trade until you think you are starting to get the rhythm of the market and then start trading actually. Many brokerage firms offer online training courses which you could take advantage of.
Get a Trading Account
You must know the day trading requirements. To start actual trading, you must sign up for a trading account with a brokerage firm which deals in forex or stock trading. Sign up with a brokerage firm which has a good performance record and which can provide you with an online trading account, with information resources that keep you updated about market developments round the clock.
Gather Adequate Trading Capital
Don't even think about beginning to trade until you are confident enough and have gotten a hang of the day trading method. Invest your own savings which you can afford to risk, while ensuring that you have sufficient financial backup otherwise. Think twice before using the leverage offered by your trading firm as it compounds financial risk. To be able to garner substantial profits, you will need a large amount of capital, which you will need to arrange for.
Learn Day Trading Strategies
There are various day trading strategies which you could choose from. None of them is perfect and not one can guarantee high returns all the time. Some of the strategies used are 'Swing Trading', 'Trading News' and 'Arbitrage'. Each one of the strategies help you to take advantage of market upswings and downswings to generate profit. Study and choose the strategy which suits your temperament and style.
Master Market Analysis & Use of Software
Market analysis and processing of information is vital to make big profits in this high risk game. There are many advanced software programs that can be used to predict market behavior. Get hold of and learn to use these software programs and combine its predictions with your individual judgment to make your decisions.
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