Day trading can be a profitable way to make money passively. However, having the right strategies for day trading can help you get ahead faster.
More than 50% of households in the United States own shares of stocks. People are increasingly familiar and comfortable with investing, which is why many people are getting into more advanced avenues. Day trading is one of the more advanced types of investing that you can look into.
Learning how to day trade can help you grow your wealth and put you in a better position to secure your financial future. Coming up with a day trading strategy requires you to do some research and an assessment of your situation.
Here are some strategies for day trading that can help you build your wealth.
1. Have a Set Amount That You Can Invest
First, make sure that you have a set amount that you’re able to invest without thinking twice about it. Your day trading strategy will require more risk tolerance than long-term investing.
People who day trade deal with larger potential swings of gains and losses, so you should never invest more money than you feel comfortable. The best thing that you can do is set aside a fund for your investment money so that you can fund your brokerage account and resist the temptation to add more if you deal with a big loss. Start small and grow the amount that you’re willing to invest once you grow more comfortable.
2. Figure Out What Strategy Works for You
Next, it’s important that you start day trading with some core strategies before branching out and developing your own. Some of the strategies that day traders use include scalping, momentum trading, pullback trading, and breakout trading.
Take the time to learn the differences between these strategies and test out one at a time to see what works for you. This will let you understand the nuance and philosophy behind a strategy before doing a merry-go-round of strategies anytime you face adversity. You will be better able to learn your risk tolerance and investor personality until you land on some strategies that will help you for the long term.
3. Speak to a Financial Advisor
It’s also crucial that you speak to a financial advisor who can steer you in the right direction. Too many people branch out and try to handle their own day trading strategies without having a core understanding of what is involved. Working with an advisor gives you the chance to learn the fundamentals from someone who earns a living with investments.
By having the guidance and help of a professional, you can start to earn day trading profits and potentially minimize your losses. Make sure that your financial advisor is licensed and insured and find out what type of investments and wealth-building they specialize in. This will let you know you’re choosing someone with the pedigree and experience to guide you, and you’ll feel comfortable with the money that you spend on their services.
4. Find the Right Brokerage
Choosing the best brokerage platform is one of the best decisions that you can make when you are ready to start day trading. You are more likely to make several day trading mistakes when you choose a platform that has excessive fees or that you don’t completely understand.
For starters, try out a few different platforms to see what works the best for you. Many of these platforms offer trials so that you can dip your toe into the water with a few investments rather than investing all of your capital immediately. Check out some reviews and make sure that you also choose a platform with a quality graphical user interface (GUI) and mobile setup so that you can make quick decisions on the fly during daily trading windows.
5. Place Limit Orders
When learning how to day trade, there are always some checks and balances that you need to use. Limit orders let you set specific price points for entering the market and getting out of an investment.
This puts some control on the situation so you feel less like you are flying by the seat of your pants. Any platform that you try out will let you place limit orders for whatever amount you see fit, which will help you learn the ropes and reduce your losses. It takes a lot of the chaos out of the situation and will help you stabilize your trades.
6. Do Your Own Research
Above all, you need to make sure that you are regularly doing research into day trading and investing as a whole. Treat it like a full-time job and with the seriousness that it deserves. This way, you will be able to trade with full confidence and can make educated decisions that serve you.
Subscribe to some publications, read literature, and make sure that you are regularly taking courses and absorbing content that will make you a better trader today than you were yesterday. You can also sign up for services like My Investing Club to help you on your journey.
7. Mind Your Taxes and Fees
A rule of thumb for any type of investing is to manage your taxes and fees. Always understand how capital gains tax works and figure out if an investment is worthwhile based on the amount of taxes and fees that you will have to pay.
Some positions simply aren’t worth if if most of your money will be lost to these obligations. This requires a full understanding of the market and how taxes work, and from there, you can learn strategies to minimize these fees.
The Best Strategies for Day Trading
The points above will help you when you’re exploring the best strategies for day trading. It’s a lucrative way to build your wealth as long as you go about it in an informed manner. Begin with these points and check out some of our other articles to help with your investing experience.