Trading in the stock market requires some basic knowledge of financial markets. While many new traders tend to copy trade and piggy bank on experienced traders, it is advisable to understand market dynamics and hopefully build your own investment portfolio.
Note that financial markets are volatile and unpredictable, so a lot of care should be taken to prevent bad investment decisions. With that in mind, the first and most important step in stock trading should be developing a full-proof strategy.
Here is a shortlist of day trading techniques that will help you build an effective strategy.
Top Stock Trading Tips in 2021
The reason many beginners fail in financial markets is greed and a lack of patience. While trading is quite lucrative, it will not make you a millionaire on the first try. Avoid poor practices like over-leveraging and over-trading at all costs.
Limit the number of trades you make per session and how often you trade.
Ensure you take time between trades to evaluate the market and improve on mistakes you may have made.
Remember, you are dealing with a volatile market. Price movements can change at anytime.
The more you stake on a trade, the higher your risk margin. Start small, place no more than 1% of your investment portfolio on each trade. This practice will allow you to gain market experience as you go along.
Think of Stock Trading as a Job-Not a Hobby
A lot of time and effort goes into trading stocks-so if you want to profit from it, you will have to do the legwork. Greed and laziness are two of the leading reasons why people fail in this industry.
You will need to be diligent, disciplined, and observant. While it is profitable, there are a dozen ways you can end up losing your entire investment portfolio if you get emotionally involved.
Always maintain a level head when you trade. Losses are a common feature in stock trading, and sometimes it may just be a case of bad luck. Do your research and keep your focus. Trading should be a long-term investment if you want to achieve profitability.
Be Up-to-date on current events
While many traders focus on price movements and historical data, it is crucial to understand that several external factors influence market dynamics. Political events, stock market news, and various economic factors can affect commodity prices.
Knowledge is power, so the more you know about the stock you plan to invest in, the better placed you are to make intelligent decisions. Although many day traders view fundamental analysis as a strategy that suits long-term investments, it is still a valuable asset in short-term trades.
Disregard Penny Stocks
While it is advisable to start small, don’t go for penny stocks. The goal is to make money, so avoid trades that are $5 and below. The reason is that you want liquidity, something that these stocks don’t offer. Turning profit with penny stocks is rare, and they get de-listed frequently.
If you do decide to invest in a penny stock, ensure you research thoroughly.
Decide What and When to Buy
The biggest challenge for stock traders is knowing what to buy and when. Several factors come into play here. First, how liquid is a stock, price fluctuations, how often is it traded, and by what volume. For day traders, the goal is to find a volatile asset that moves in high volumes. What this means is that this commodity has gunned a lot of interest.
Don’t stake against the grain. There are scenarios where investors bet on a trade that no one is interested in and win, but this is rare and dangerous. For beginners, always bet on trend-stocks unless you see an opportunity with a manageable risk margin.
Stock trading is more about timing than it is about market analysis. Once you successfully recognize patterns, you will need to perfectly time your trades. Don’t jump into a position as soon as the markets open. Take time to evaluate price movements and find the best entry point.
Set Realistic Goals
Even the most well-designed strategy has its pitfalls. Don’t expect to record profits all the time. Be prepared to take a few hits-it happens to 90% of new traders. The most critical strategy is to ensure your losses are manageable. The success rate for many traders is only about 50%-so set goals that are realistic and achievable.
Stock trading isn’t as strenuous as people think. It may be time and cost-intensive, but it is rewarding once you get the hang of it. If you have the right strategy, are patient and level-headed, you can turn it into a profitable investment.