Day trading is a great way to put your money to work and make it grow. It’s also an excellent way to lose money fast. When people were forced to stay home during the Covid-19 lockdown, many turned to the stock market to gain some investment returns. According to a Reuters article, the average daily trading volume in 2021 was triple the amount in the pre-pandemic era, i.e., in 2019.
If you, too, are a new investor, you might be wondering how to get into day trading and earn some quick money. If you’re interested in day trading, learn the basics, then start small. Know your budget, don’t fall for the hype, and most importantly, keep cool.
Follow The News
It is essential to follow the news to become a successful day trader. However, most people don’t know how to follow news in trading. It’s important to remember that as a day trader, you’re not trying to predict what will happen in the future. Instead, your goal is to react quickly and correctly when market conditions change.
To be able to react quickly and seek opportunities, you need information about what’s happening right now, and that’s where following the news comes in handy. For instance, a study published in the Journal of Financial Economics analyzes jumps in market stock prices due to news. The study considers 21 million news articles for 9,000 companies and concludes that news can significantly impact stock price jumps.
There are several ways of finding news online. You can use social media networks like Twitter or Facebook, search engines like Google or Bing, or specialized sites such as Seeking Alpha or Yahoo Finance. Once you’ve found some relevant articles for your trading strategy, don’t just skim them; read them carefully. This way, you can act quickly and make some money if you learn of any upcoming events that may affect stock prices.
Choose A Strategy And Stick With It
The most important step in making your money make money is to choose the right strategy. This is because you’re going to be devoting a great deal of time and energy to your day trading operation, so you must find a strategy that suits your needs.
Many different strategies are available, each having some pros and cons. One strategy can be better than another. For instance, an article published in the Springer Journal studied Gatev–Goetzmann–Rouwenhorst (GGR) and bi-objective quadratic programming with quadratic constraints (BQQ) strategies in the Chinese stock market. The study found that the BBQ method can help achieve higher returns.
You will also have the option to trade among various stocks. However, one of the best day trading options is to trade in S&P. S&P, also known as SPX options, can offer a higher risk-higher returns ratio.
A CNBC article that refers to a Charles Schwab survey states that 44% of investors were trading for short-term profits in 2020. Since the new generation of investors is looking for short-term profits, SPX options are an excellent way to achieve their financial goals. However, you must ensure having a robust strategy before day trading.
There are many trading strategies you can come across from different resources you find on the internet. You can select a day trading SPX options strategy from those or create your own strategy that works for you. Remember, the key is to stick to the right strategy once you have found it.
Learn The Basics Of Trading
There are two main ways to invest in the stock market, long-term and short-term. The latter is called “day trading,” which refers to buying and selling stocks within the same day. It involves a lot more risk than long-term investing because you will be taking on more risk without getting much reward unless your price predictions on stocks are accurate.
Learning the basics of trading is important to become successful in day trading. Day trading is a complex and risky form of investing, and having a solid foundation of knowledge about trading is essential for success.
Knowing the basics of trading, such as the different types of markets, the different types of orders, and the different strategies available, will help traders make more informed decisions and increase their chances of making profitable trades.
Additionally, having a solid understanding of the risks and rewards associated with day trading will help traders manage their risks and maximize their profits. Learning the basics of trading is essential to becoming a successful day trader.
According to NerdWallet, a stock market beginner should know the following:
- Stock market terms
- Market indexes
- Best and worst-performing stocks
- Bull markets and bear markets
- Market crash and market correction, etc.
Set A Budget For Your Account
Your first step in day trading is to set a budget for your account. You will need to determine how much money you want to invest and what percentage of that amount should be allocated toward each trade. There are several options available, including:
- Budget for the entire account: This would include all trades and deposits made into an account. It does not allow for any flexibility on a per-trade basis.
- Budget per trade: The trader sets aside a certain amount of capital for each transaction instead of allocating funds across all transactions taken during one period.
- Budget per day: The trader allocates his or her daily budget based on analysis of previous performance data related specifically to trading activity within one calendar day rather than over multiple days or weeks.
- Budget per week: This method works similarly to daily allocation but allows traders more flexibility with their capital allocations while they take into account fluctuations in price movements over more extended periods.
Avoid Penny Stocks
Penny stocks are a type of stock with low prices and small market capitalization. The SEC defines these as companies trading at less than $5 per share or with a market cap under $50 million.
Penny stocks are often considered multi-baggers. However, this comes with great risk. These stocks often involve the risks of fraud and loss. For instance, penny stock companies can use pump-and-dump schemes, as shown in movies such as “Wolf of the Wall Street.” Hence, even if you invest in penny stocks, invest only a low amount.
With so many options for trading out there, your choices are the only things standing between you and financial freedom. Once you have the correct information and strategies in place, day trading can be highly beneficial.