A day trader is a stock trader who buys and sells financial instruments but ensures that no position is carried to the next trading day. As such, at the end of a trading day, a day trader will be left with no financial instruments. Such financial instruments may include equity stocks, options, futures, derivatives, and currencies - a day trader will buy a quantity of any (or more) of these financial instruments and before the close of the trading day, shall sell an equal quantity of the same financial instruemnts. Inversely, if he/she sellls such instruments, the same quantity shall be bought to square off the position before the end of the trading day.
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Day Trading RulesEdit
In case, you already are a day trader or desire to indulge in day trading, please remember that no one should expect to become an expert within days – it takes time to become a seasoned day trader. It is advisable to some mock practices on the web before committing your real money. At the same time, please do not feel nervous. A saying tells that scared money makes profit with difficulty. Certain basic rules, which you should follow as a day trader are:
- earn from your losses: treat each loss as a learning exercise to gain and improve your confidence quotient to deal in the market. At the same time, you should learn to limit your losses. For this you should use stop order. Moreover, never allow large profits to learn into losses. It is really de-motivating and debilitating to your psyche.
- In case, you find that the market is not performing as per your expectation, waiting till the last moment till the market’s closing time shall not take you anywhere but to perhaps a sure loss. It is advisable to liquidate your position and stop trading for that day. You may also consider simply standing aside and watching the market, if you are unable to form any opinion – standing aside and doing nothing is also like taking a position: in this scenario your position becomes one of an observer to decide your future move and strategy next day.
- It is also a highly imprudent way to add to a losing position. You are perhaps adding to your losses and they may become bigger. As a general rule, you may consider to exit your position if the price of your particular holding depreciates by 25%.
- Trading with the trend is always advisable – but trying to predict the top and the bottom is never possible and rarely people succeed in doing so – it is more a coincidence and luck than knowledge. As such, trade with the trend and simply confine your assessment to the general market scenario.
- Experienced traders understand a rule: they know to subordinate and subjugate their personal opinions and views to the common will of the market as market is always right. Never get emotionally attached to the market – emotions of owning a particular stock or a particular type of action shall lead you no where but to stress and perhaps to avoidable losses.
- Pre-determine the risk and the loss you are ready to bear on a day-to-basis, and never expect that every trade done by you shall be profitable. Learn to book losses at times. Flexibility in approach is a key attribute of a successful day trader. Each day and each stock is different and may require a different approach.
- Deciding fast and acting fast are key attributes of a successful day trader.
- One should concentrate on few stocks and few markets – expanding beyond a level is not desirable.
- Keeping records is a must to know where you stand. It also helps you in analyzing your actions and results.
- This is perhaps not a rule of day trading. In case, you find that day trading is stressful for you, please do not indulge in it. There are several other ways to access stock and other markets.
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