Day Trading Strategies

Day Trading Strategies
1. Knowledge Is Power
In addition to knowledge of basic trading procedures, day
traders need to keep up on the latest stock market news and
events that affect stocks—the Fed's interest rate plans, the
economic outlook, etc.
So do your homework. Make a wish list of stocks you'd like to

trade and keep yourself informed about the selected companies
and general markets. Scan business news and visit reliable
financial websites.
2. Set Aside Funds

Assess how much capital you're willing to risk on each trade.
Many successful day traders risk less than 1% to 2% of their
account per trade. If you have a $40,000 trading account and
are willing to risk 0.5% of your capital on each trade, your
maximum loss per trade is $200 (0.5% * $40,000).
Set aside a surplus amount of funds you can trade with and
you're prepared to lose. Remember, it may or may not happen.
3. Set Aside Time, Too

Day trading requires your time. That's why it's called day trading.
You'll need to give up most of your day, in fact. Don’t consider it
if you have limited time to spare.
The process requires a trader to track the markets and spot

opportunities, which can arise at any time during trading hours.
Moving quickly is key.
4. Start Small
As a beginner, focus on a maximum of one to two stocks during
a session. Tracking and finding opportunities is easier with just a
few stocks. Recently, it has become increasingly common to be
able to trade fractional shares, so you can specify specific,
smaller dollar amounts you wish to invest.
That means if Apple shares are trading at $250 and you only
want to buy $50 worth, many brokers will now let you purchase
one-fifth of a share.
5. Avoid Penny Stocks
You're probably looking for deals and low prices but stay away
from penny stocks. These stocks are often illiquid, and chances
of hitting a jackpot are often bleak.
Many stocks trading under $5 a share become de-listed from

major stock exchanges and are only tradable over-the-
counter (OTC). Unless you see a real opportunity and have
done your research, stay clear of these.
6. Time Those Trades

Many orders placed by investors and traders begin to execute
as soon as the markets open in the morning, which contributes
to price volatility. A seasoned player may be able to recognize
patterns and pick appropriately to make profits. But for newbies,
it may be better just to read the market without making any
moves for the first 15 to 20 minutes.
The middle hours are usually less volatile, and then movement
begins to pick up again toward the closing bell. Though the rush
hours offer opportunities, it’s safer for beginners to avoid them at
first.
7. Cut Losses With Limit Orders

Decide what type of orders you'll use to enter and exit trades.
Will you use market orders or limit orders? When you place a
market order, it's executed at the best price available at the
time—thus, no price guarantee.
A limit order, meanwhile, guarantees the price but not the

execution. Limit orders help you trade with more precision,
wherein you set your price (not unrealistic but executable) for
buying as well as selling. More sophisticated and experienced
day traders may employ the use of options strategies
to hedge their positions as well.
8. Be Realistic About Profits

A strategy doesn't need to win all the time to be profitable. Many
traders only win 50% to 60% of their trades. However, they
make more on their winners than they lose on their losers. Make
sure the risk on each trade is limited to a specific percentage of
the account, and that entry and exit methods are clearly defined
and written down.
9. Stay Cool
There are times when the stock markets test your nerves. As a
day trader, you need to learn to keep greed, hope, and fear at
bay. Decisions should be governed by logic and not emotion.
10. Stick to the Plan

Successful traders have to move fast, but they don't have to
think fast. Why? Because they've developed a trading strategy
in advance, along with the discipline to stick to that strategy. It
is important to follow your formula closely rather than try to
chase profits. Don't let your emotions get the best of you and
abandon your strategy. There's a mantra among day traders:
"Plan your trade and trade your plan."
Before we go into some of the ins and outs of day trading, let's
look at some of the reasons why day trading can be so difficult.

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Day Trading Strategies

So do your homework. Make a wish list of stocks you'd like to

2. Set Aside Funds

3. Set Aside Time, Too

The process requires a trader to track the markets and spot

Many stocks trading under $5 a share become de-listed from

6. Time Those Trades

7. Cut Losses With Limit Orders

A limit order, meanwhile, guarantees the price but not the

8. Be Realistic About Profits

10. Stick to the Plan

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