Are you an aspiring day trader? Have you hoped to duplicate the same levels of success that you have witnessed in others? In truth, the key to becoming an expert day trader has nothing to do with smoke and mirrors nor does it rely upon instinct alone. The path to independent wealth instead involves the ability to apply a handful of tried-and-tested suggestions to your advantage. What are four recommendations which will help you to overcome any pitfalls and to maximise your return on investment?
The Relationship Between Supply and Demand
This is one of the most fundamental economic laws and yet, many day traders fail to realise its full impact. Large disparities between supply and demand will lead to equally dramatic market movements. This is why astute investors are keen to search for any associated gaps. Not only should bullish and bearish trends be spotted, but any turning points need to be identified if you hope to capitalise upon a specific position.
Learn to Spot Trading Patterns
Technical analysis should play an important role within your day trading strategy. Some individuals shy away from this field to to its perceived complexity. However, possessing a basic understanding of some of the most common patterns is critical to predict both short- and long-term movements. Some common chart patterns include:
- Head and shoulders
- Flags and pennants
Research these and other configurations in greater detail to appreciate what each signifies.
Always Set Your Stop-Loss Levels in Advance
It is always prudent to determine your stop-loss levels before you enter into a position. Why is this strategy recommended? If you decide to “let it ride”, sound decisions could very well be swayed by emotions such as greed or fear. Establishing target margins as well as acceptable losses will enable you to analyse any future movements with a clear and unbiased perspective. Stop-loss levels of between 10 and 15 per cent are generally preferred by most day traders although these figures could naturally vary depending upon your unique strategy.
The Very Real Danger of Unchecked Emotions
One of the thrills associated with day trading involves the ability to accrue sizeable profits within short periods of time. However, this very same sense of liquidity can cause a great deal of stress. Keeping your cool while day trading is key to making better financial decisions. Still, it can be difficult to tell if you are overworked or if your nerves are frayed. Ask these questions when in doubt:
- Have I recently incurred more losses than normal?
- Am I presently under a fair amount of financial strain?
- Am I making poor decisions?
- Is day trading beginning to take over other areas of my life (such as work or family)?
Any of these scenarios could be clear indicators that you need to step away in order to regain your composure. Never forget that taking a hiatus from investing will not change the fact that the markets will still exist when you return. It is much better to recharge your mental and emotional batteries as opposed to unknowingly committing errors that would have otherwise been completely avoidable.