Ever imagine making money from the comfort of your home? Even you must have heard of people who “work from home”. It’s a tempting work life. Instead of the hustle and bustle for very long tiring hours, why not stay at home and earn money. Day trading can be done from the comfort of your living room but if you think that it is all “fun and games”, you have to rethink. Maybe next time when you hear about day traders who work from home, you pay them a little more respect than you did.
It is a very risky venture. Without experience or care, you can make losses more than you imagined. Although with good trading strategies, you can hit that profit for as much as possible.
What then is day trading? What are day trading stocks? How do you day trade? What strategies can make You profit? How do you hold on to your portfolio? You must have a lot of questions while coming into this article. Calm down and read while we guide you comprehensively though the day trading stocks and how you can profit from them.
What is Day Trading?
Day trading is an online based business of buying and selling stocks within a very short period of time or in one day. That was quite easy to explain wasn’t it? Just like every buying and selling in business, the goal is to make profit. Before the close of the trading market for each day, you have to close out your position in order to secure your profit. With day trading, your profits come in small units that become tangible when accumulated over a long period of time. To really make profit, you have to dedicate a lot of time day trading stocks. So, when we say its not all fun and games, it is really not all fun and games.
How do You Day Trade?
This is just a brush-though of the idea of day trading, the strategies in day trading will come later in this article.
So, what day traders do is buy stocks based on the fluctuations in the stock market. A stocks value may fall and rise so many times in a day and day traders buy these stocks and sell within that same day to make as little profits as possible. It all depends on individual day traders’ experience. Some traders could buy a stock that is falling with a promising rise the next minute. This is where the risk in day trading comes in. What if that stock value doesn’t rise?
The basic move in day trading is buying when stock value rises and short-selling when stock value falls. Its all about taking advantage of the daily stock market fluctuations.
What are Day Trading Stocks?
There are different forms in which securities traded can be in day trading. It could be in form of cryptocurrencies, FOREX, Binary Options, futures, commodities and stocks.
Stocks are the shares to which a company or corporation’s ownership is divided. Possessing a certain percentage of stock from a company shows ownership of a certain portion of that corporation. The owner of the stock is also entitled to a percentage of the corporation’s profits known as ‘Dividends’. He/she is also going to bear the weight of debts by same corporation if such arises. Buying and selling of stocks is done privately or on stock exchanges and highly regulated by the government to prevent fraud.
Day trading stocks offers different opportunities and profits than the traditional buying and selling strategy. Trading with stocks is based solely on speculations on the direction a certain stock value would move. Day traders trading with stocks take positions and decision based on the latest news, product announcement, financial reports and technical indicators on a particular stock. A single bad news on a corporation or it’s product and services can lead to a fall in the stock price value while a good one can lead to a rise in stock price. It is a function of the markets’ perception of a certain corporation’s stocks.
Holding a Day Trading Stock
The time frame for holding or exiting a trade is not a defined one. Every day trader have their own trading plan and strategy. How long you hold on to your trading stocks depends on your plan or strategy. It’s dependent on instincts and ability to take risks in a rising stock with pullbacks. Stocks don’t rise or fall in a straight line. This is the reason why even with a falling stock price, some day traders can still make profits.
The length of holding a stock during a rise doesn’t necessarily mean more profit, because there is no assurance of continued increase in stock price. Some traders who are willing to take risks for more profits, tend to hold on to stocks for longer during one or more pullbacks. Now, this decision can go both ways; either the trader stays on and the stock price rises from the pullback, making him more profit or the stock never rises from the pullback and he loses. Like we said, the longer you hold on to a stock, the more risk you’re taking.
There are two types of day trading stock traders;
- Those that exit at every pullback. They are risk averse. They would better take what small profit they can than risk loosing it even if there is a chance of making more profit.
- Those that hold stocks longer through one or more pullbacks. These types of traders can even risk buying falling stocks with the aim of making profit. They are risk neutral or risk loving. They tend to focus on the chance that they’ll make more profits than losses.
For example, two traders buy a rising stock at $31.4 which then rises to $32. 1 and to a pullback of 31.7. The first trader decides to exit at that pullback making a profit of $0.3 while the second trader decides to wait after that pullback then to next and the next exiting at $35.7 and making a profit of $4.3. It could also turn out at a loss for the second trader because the stock may never experience a recovery from the pullback.
There is no best strategy or best time to hold on to a stock. Sometimes, holding a stock for a shorter period is more profitable and sometimes it is not. Some traders prefer to hold stocks for a short time and move on to another trader. It makes sense. Accumulations of small profits from multiple trades can become a tangible amount. When you look at it technically, isn’t that taking more risk than the long stock holders? No two stocks have same patterns so, a strategy that was profitable with a certain stock may not be profitable with another.
How to get Started with Day Trading Stocks.
Before getting into day trading, you have to make that difficult decision of letting go of that 9-5 job you hold because day trading stocks needs lots of time and attention. It is not a leisure practice. While starting up, it is best you get advice from day trading professionals and experts who can give you the pros and cons of getting into the business. They could also share some profitable stock trading strategies with you, though some may ask for payments for day trading advice.
Another thing advised of you before starting day trading stocks, is to read lots of books on day trading. There are lots of books available on day trading stocks for beginners that can give basic guides to stock trading. You should also read books that’ll help you understand the stock market fluctuations. You could also keep up with financial news on the stock market and see where trends tend to rise or fall with each outcome.
Also, there are demo day trading accounts that help you practice your trading before getting into the real deal. Ensure that getting into day trading is not your last or only option. When you’re ready, you can set up real accounts that enables you to day trade stocks for real. There are two types of accounts you can create as a beginner when it comes to day trading stocks. They are;
- Cash Account- with this account, you can only trade with the amount of credit you have in your account. It limits your profits and losses to the amount of cash you have in your account.
- Marginal Account- this type of account enables your to borrow funds from your broker. It increases your trading funds and in the event of making profits, you get to profit more. This option is not immediately available to beginners. You have to have made some investments before the marginal account advantage can be allowed you.
Diversifying in Day Trading.
Diversifyingis a day trading strategy that prevents loosing all your money from just investing in one venture. In day trading stocks, the need for research is of great importance. When you look at market trends, you’ll see some stocks rising while some fall almost at the same time. Research data can be analyzed to see the correlation between two stocks. You can run the analysis or hand it over to experts to run for you. The idea of correlation between stocks is to know how to divide your investments into different stocks in order not to lose from both ends. Even after finding the correlation between two stocks, there is need for extra research to know when to come in.
There is no denying the power of diversification in the day trading business. For example, The Coca-Cola company and Pepsi are two companies that correlates negatively. When the sales of one is rising, you know that the other is dropping. If you follow the trend closely, you’ll realize that this correlation doesn’t run throughout the financial calendar. This is why there is need for research. If you study the financial calendar, you’ll realize when such trends exist and when it’s best to step in and diversify your investments.
Studies have shown that diversifying is more profitable than putting all your coins in one pocket. If you share your investments among different portfolios, there is a high chance of getting more profits with less risk, if done right. The thing about diversification is that, if you don’t understand it, it is advisable that you stick to what you know instead of making losses. There are several single day trading strategies that are just as profitable as diversification.
Some Guidelines to Day Trading Stocks in a Profitable Way.
Trading stocks can be very profitable if you dedicate your time and do it well. We’ll be leaving you to some guidelines that’ll help making good day trades and make substantial profits.
- Stick to your Strategy- most people tend to take up anything they hear from online sources and lose huge amounts from those strategies. The goal is to stick to what you know and understand instead of chasing the unknown.
- Keep Reading and Making Researches- with day trading stocks, there is not enough research that is enough. You have to keep reading on financial trends and the stock market to know when and how to make the right decisions.
- Manage your Risks- whatever strategy you adopt, there’ll always be risks. It is not wise to throw all your eggs in one basket. It is risky to invest all your money on a stock regardless of how promising it looks.
- Always learn from your losses- whatever you do, always be ready to stand up from a loss and learn where you went wrong or what pattern led you to that position.
- Calm down and stick to your Instincts- Stock fluctuations tend to test your choice and make you rethink a decision. Stay calm when it does seem like a decision is going wrong and stick to your instincts.
Day trading stocks can be very risky but with time, care and experience, it could be a very profitable venture.