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Fundamental Principles of Day Trading

 


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Most commonly we talk about day trading in the context of stocks and foreign exchange markets. Principles of this apply to both the markets equally.

Characteristics

Day Trading is considered to be an art and not a science. The major characteristic of this form of trading is rapid buying and selling.

Secondly since the market behavior is extremely unpredictable, day trading is very risky. In fact, some consider it as the riskiest form of trading.

Thirdly, it should also be remembered that small cap stocks are most volatile. The stocks of strong and well established companies are more stable and predictable.

Principles

Disciplined Trading Plan

This should be the foremost trading strategy. Unless one has a trading plan which establish entry points, exit policy, the size of trades, involvement of funds etc, , one should be careful. With a trading plan, there will be no interplay of emotions. Emotions like hope, greed and fear have to remain out of this game.

Trading Times

Many people are under the impression that day trading needs a lot of time. Though intense, that may not be true. Most important is that one should trade when there is too much of activity. Generally trading is very heavy during morning hours, at the end and at the time of any sudden news. One has to be watchful about these. These are the best times to trade and one may not be needed to remain glued to the computer whole day long.

Need larger Amounts of Money

Generally day trading needs a large amount of money in order to sustain in the market. One may not use all of this money, but it is needed in order to carry on in the face of heavy losses.

Number of Shares

While trading, one should keep the number of shares or currency under focus and not the value of securities or currencies.

Be Knowledgeable

A day trader should be prepared and informed. He should have as much information about the market and the stocks as possible. This is necessary to take advantage of wide swings in the market which is news driven. Invest time in education.

No Overnight Position

As for as possible, one should never carry any overnight position.

Others Considerations

One should be humble during both victory and defeat. Day Trading demands taking of personal responsibility. Decisions should be made with complete information and confidence

Conclusion

Day trading is subject to huge losses and gains. This should be recognized. So research and research and identify stocks and currencies which can be predicted more clearly.

The author has background in business, economics and finance. He is presently researching in finding ways to make money and working on the following website and blogs:

http://www.businesses-jobs-careers.com

http://makemoneyplans.blogspot.com/

(512)

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