The idea of day trading is exciting. All you need is a computer or smartphone and an internet connection to get started. Multiply your money, make your profit, move fast, and make big bucks in financial markets.
Top trading firms are making new billionaires every year, so shouldn’t it be easy to get your own humble slice of the pie? While many seek to make their fortune through day trading, the truth is that the vast majority of day traders lose money. However, if you want to learn day trading, use this guide to help you get started.
A famously quoted metric is that 80%, 90%, or even 95% of day traders lose money. While these claims are rarely sourced, actual studies have shown that 97% and sometimes well over 99% of day traders fail to make consistent gains by day trading. So how do you succeed?
Here’s How You Can Succeed in Day Trading
While day trading is difficult, these steps can help you succeed.
Get a Proper Education
The reason so many fail in day trading is that they are inadequately prepared and lacking institutional connections. Day trading is a challenging activity. While some instruments are easy to trade, finding them is an entirely different matter.
In order to successfully day trade, you must first learn through formal education or professional experience. There are several ways to go about this, but the most obvious and straightforward is to get a financial education and join a business that employs traders.
A successful bank, investment fund, or trading firm will take on new analysts as university graduates or experienced finance professionals. These analysts will work alongside a portfolio manager who actually does the day trading and manages accounts at the trading desk.
Employees at these firms make huge amounts of money through a high salary and large commission bonuses from their successful trades. The top traders at these firms will earn tens or hundreds of millions each year, and the top fund managers often earn billions per year.
Become a Retail Trader
So, making money through day trading requires preparation and experience.
If you’re not looking to take the formal path to trade for a large institution, you can always be a retail trader and simply manage your own money. This is difficult, but it’s not impossible. Millions are attempting it, and there is a significant portion of successful retail traders.
Like with any other high-performance activity, success requires careful study and lots of practice. This means practice with paper trading and with real equity. Paper trading is simply practicing trades with theoretical money and developing a working strategy and familiarity.
Practicing with real equity means using real money to buy and sell securities on the market. This is essential as it will give you real experience with the psychology of trading real money. Becoming mentally disciplined is arguably more important than a sophisticated strategy.
One approach is stock chart patterns day trading. This involves looking at patterns in price charts and using hotkeys for day trading to enter and exit positions quickly. This is a risky approach, but it can be perfected through simulations.
Start Trading Penny Stocks
Anyone can sign up with a retail broker and start day trading penny stocks in 60 minutes or start trading stocks using technical analysis for free. Technical analysis simply involves looking at past trading activity, price patterns, and technical indicators to predict future price movement.
What Are Penny Stocks?
A penny stock is simply a stock that trades at $5 or less and belongs to a small company. Some of these stocks trade on mainstream exchanges like the New York Stock Exchange (NYSE) or the National Association of Securities Dealers Automated Quotations (NASDAQ).
However, many penny stocks are traded on Pink Sheets or Over-The-Counter (OTC) markets. This means the stocks are traded through networks of brokers, separate from the main exchanges. Markets like the OTCBB are full of penny stocks and small companies to invest in.
There are multiple types of securities on these markets, including derivatives, bonds, representative shares of foreign stocks, and anything that does not always trade on the primary exchanges. Penny stocks are very popular on these exchanges as there is a low barrier to entry.
All that is required to get listed on these exchanges is regular SEC filings. This makes it a great way for new companies to find investors from the public and raise money to get their companies off the ground.
Why Penny Stocks?
These penny stocks are very inexpensive and easy to access. They also have a low market capitalization, or combined value of shares, meaning they are ideal for making large moves quickly. Penny stocks are perfect for beginner retail traders.
As the prices are already very low, penny stocks often have high volatility. For example, a $1 movement on a $1 stock is a 100% price change. This could double an investment or cut it in half, making penny stocks very risky and prone to large relative movements.
However, a $1 stock is also very affordable for any investor. The low price means that anyone with four or even three-figure investment accounts can easily purchase 100 shares at a time in penny stocks. There is a low barrier to entry yet high risk for this asset class.
It’s important to be very careful when researching and trading penny stocks. There are no minimum standards to get listed on these exchanges, and there is often little information available on the companies behind the stocks. It’s important to research fundamentals before investing in these penny stocks.
How Do I Get Started?
It’s very easy to get started with penny stocks. As mentioned earlier, you can start trading penny stocks in 60 minutes. All you need is to register with a retail broker, deposit your investing funds into the account, and use their trading interface to find penny stocks to purchase.
There are some exceptional choices when it comes to retail brokers for penny stocks. Some brokers are built specifically to help retail traders find and trade penny stocks with very low minimum requirements for starting capital. A penny stock market watch will help you find opportunities in this sector of equity.
Absolutely anyone can trade penny stocks. It’s quick and easy, and retail brokers can walk you through the process.
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