Since the outbreak of the coronavirus pandemic, there’s hardly been a quiet day on Wall Street. With the initial crash and the remarkable recovery, plus huge international news events like the whole Gamestop situation, a lot of people have been wondering if they should try their hand at making money with the stock market.
With tons of retail traders joining the game, stock trading volumes have been through the roof.
Perhaps you’re dreaming about quitting your day job and trading securities for a living. While it’s entirely possible, it’s important to know that there are a lot of risks involved and a high failure rate.
Are you wondering how to become a day trader? Let’s take a look at what you need to know.
Conduct a Self Assessment
Many people think that learning how to day trade means you’ll have an easy job that requires little time. Actually, though, successful day trading requires a commitment to a lifestyle as well as a combination of traits, knowledge, and skills.
People with lots of financial knowledge, mathematical abilities, and awareness of behavioral psychology are in a better starting position than those who do not. You also need to have the stomach for entrepreneurship.
The most essential day trading secret to success is having the right mindset. You will need to devote time to teaching yourself and mentally prepare yourself to suffer losses after taking risks.
Access Sufficient Capital
A normal part of the day trading process is extended and intermittent losses. Not even the best day traders can generate profits consistently.
In order to deal with this, one must have a capital cushion. If you start trading with only a small amount of money you will likely lose it. You will also need to maintain a balance of $25,000 in your trading account in order to be an active day trader.
Understand the Markets and Securities
If you are wondering how to start day trading, you are definitely going to need a solid foundation of market knowledge. The stock market is complicated, and you’ll have a lot of learning to do if you are starting from zero.
You also have to learn how securities work. Stocks, options, futures, mutual funds, and ETFs all trade differently. You’ll want to learn about each of these and how they function. If you start trading before you are knowledgeable about securities in the markets as a whole, there’s a good chance it will lead to losses.
Learn About Trading Psychology
Another very important factor when you learn day trading is trading psychology. You might not realize how you will react when you have money in the market. Greed and fear are driving psychological functions that can lead you to make poor decisions in the heat of the moment.
Learning about trading psychology and how to manage your emotions is essential to success.
Create a Trading Strategy and Integrate It With a Plan
It is important to have trading strategies because they can create consistency in a highly dynamic market. It’s important to understand that trading strategies can be successful in a consistent way for a long time and then fail all of a sudden. For this reason, it’s important to always stay on your toes about whether or not a trading strategy is still effective.
When you are just starting out, it’s a good idea to start with two strategies. As you become more knowledgeable, you can adopt a larger number of strategies.
You’ll next have to integrate the strategy with the plan. This plan will include things like your entry exit strategy, which assets you’re going to trade, how much capital you use, and how frequently you are going to place trades.
Choose a Brokerage and Platform
When you are a day trader, you will likely make frequent transactions. There are costs to every transaction you make, so you’ll want to thoroughly research different brokerages and their fees. You can then make a decision about which one will work best with your trading style.
You also want to choose a platform that offers tools that you’ll use while trading. There are many different options, and it’s a good idea to take the time to find the right brokerage and platform from the get-go.
Now it’s time to practice. You can play with paper money until you are ready to put your actual money in the market.
Be aware that it’s hard to simulate the psychological effects of trading when you know the money isn’t real. For this reason, some people don’t advise paper trading. Either way, though, it’s a good idea to get familiar with the software first.
When you a trying a new strategy, start small. This is true even if you have a lot of experience and money. Once the strategy has proven itself to be effective, then you can increase the stakes.
Now That You Know How to Become a Day Trader, You Can Determine If It’s Right For You
Learning how to become a day trader isn’t as easy as it might sound. The stock market is complicated, and retail traders are competing against hedge funds to make gains. However, if you’ve decided that this is the way you are going to make some or all of your income, the best thing you can do is invest a lot of time into research, learning, and planning.
Did you find this article full of day trading tips interesting? If so, be sure to check out the rest of our blog for more fascinating and informative content!