In this guide, we will take you through 10 top stocks related day trading tips that will help you to get started in this fast paced, and interesting way to take advantage of stock market movement.
Day trading stocks Vs investing – Night and Day from one another
Stock trading is the act of buying and selling stocks, or shares of ownership in a public company but the way you do this can be quite different indeed. It can be done for short term intraday profit (day trading), taking advantage of trends over a short to medium period (swing trading), or even as part of a long-term investment strategy.
Attempting to make money in the stock markets is a complex process and there are many different strategies that can be used as I have touched on briefly above. When it comes to investing, some may focus on buying stocks that are undervalued by the market and selling them when they reach their ‘true’ value, whilst others focus on finding companies with strong fundamentals and holding onto their stock for the long term.
Day trading stocks takes place on shorter timelines
On a shorter time horizon, day traders of stocks, and swing traders, typically care less about the fundamental valuation aspects of a company; instead focusing more on things such as momentum, trends, and technical analysis to make short term gains. From this perspective, even if the stocks being traded are significantly outside of the usual earnings multiples and seem eventually destined to drop, the day trader could not care less, as they intend to be out of their position long before that moment arises.
One of the best day trading tips you could wish to know, is that there are many different strategies that can be used to be successful, and there is no hard and fast rule that says you must do things this way, or that. You will need to perfect a strategy that works for you, and you will likely be required to be a lot more active when day trading vs investing; but when all is said and done, if you are good at it, day trading can be highly lucrative.
No matter what strategy you choose to use, day trading stocks requires careful research and analysis, and the right tools to use. You need to have a decent understanding of the companies you’re trading in (less so than investing, but you will still want to know some basics of the company), and it is fundamental that you would want to know which type of market conditions are most likely to impact their stock price.
Stocks Day Trading Tips For Beginners
There can be a lot to learn, but these 10 stocks day trading tips for beginners will point you in the right direction of the most important things to remember
1. Do your research:
Before you ever start trading stocks, it’s important to do your research and understand the market. This will help you make informed decisions and avoid making costly mistakes. Preparation is vital in all areas of life, but in trading stocks, it could be said to be even moreso as you have money on the line, and other market participants who are prepared with information like you wouldn’t believe.
You do not need to be a professional stock trader in order to have success, but you will want to ensure you are confident with key factors that can move the markets, or an individual stock price.
2. Start with small investments and control your use of leverage:
One of the best stock trading tips you will find when you’re first starting out, is that it’s a good idea to start small, and most importantly, at a level you are completely comfortable with. Make small investments rather than putting all of your eggs in one basket, so to speak. This will help you learn the ropes and get a feel for how stock trading works, without risking too much of your hard-earned money.
As far as using leverage in stocks, you will want to keep your risk management tight if you are a day trading beginner, and try not to use leverage at all in the early stages. Once you have a good understanding of your trading plan, and you are executing successfully for a period without leverage, only then consider gradually increasing your trade size and use of margin. Many brokers, and reputable stock trading platforms will want you to minimise your usage of margin accounts early on regardless, and that means keeping individual equity leverage below 1:5 according to most trading regulators.
3. Stick to sectors that you know:
Another stock day trading tip that is worth following, particularly when you’re starting out as a beginner, is to focus on markets or sectors that you know. This will help reduce the amount of research you need to do, and also make it easier for you to understand what is going on.
If you have some knowledge about electric vehicles, or a passion for gaming, or work in the energy sector, then these can be areas of knowledge that might help to support your trading of stocks in these areas. Trying to trade in a market or sector you are not familiar with can be a recipe for disaster, and although it can be tempting to chase a running sector, over a period of time, you will likely get stung more often than not.
4. Use stop-loss orders religiously:
Managing risk in general, is one of the top stock trading tips you will want to know better than most, and stop losses are one way to do that. A stop-loss order is an order placed with a broker to buy or sell a stock once it reaches a certain price. This can help you limit your losses if the stock price starts to fall, as you have already predetermined at what point you will sell.
5. Use limit orders:
Another tool that the best stock traders take advantage of are limit orders. This is an order to buy or sell a stock at a specific price. limit orders can help you control how much you pay for a stock, as well as take profits at a certain price point.
Using limit orders in your stock trading is one tip that will help you ensure that you do not run the risk of getting a ‘bad fill’ on a market order. Whilst there is the NBBO to protect all orders, during periods of high volatility, prices can swing rather rapidly in a matter of seconds, so always best to use limit orders in your stock trading… your portfolio will eventually thank you for it!
6. Don’t panic:
When the stock market starts to look like it’s in free fall, it can be tempting to sell everything and get out while you still can. This is often referred to as ‘panic selling’ and it’s one of the worst things you can do when stock trading. Why? Because most of the time, the market will eventually recover and if you sell in a panic, you will likely miss out on the reversal.
Instead, try to stay calm and rational when stock prices are falling, and remember that if you have a well-thought-out plan in place, there is no need to panic. You can also consider when day trading stocks that you can trade the leg down, as well as the potential reverse up. Start to see momentum, and volatility as an opportunity, and one that you want to be on the right side of.
One of the best stock trading tips we can offer is that most portfolios are built during times of fear, when prices are ‘at a discount’; rather than when markets are buoyed with confidence, and demand is pushing prices outside of reasonable earnings multiples.
7. Have patience:
Another one of the key stock trading tips is to have patience. This is especially important when you are first starting out, as it can be tempting to ‘chase’ stocks that are moving higher, in the hope of making a quick profit or to abandon your trading as soon as you hit a blip in your account.
Stock prices can be rather volatile, especially in the short-term, and chasing stocks higher, after a huge move is often a recipe for disaster. Instead, it’s important to wait for stock prices to pull back to a level of support or resistance to see how it behaves before considering entering a trade. This will help you avoid getting ‘whipsawed’ by volatile stock prices and will improve your chances of making a profit on your trade.
8. Use technical analysis:
Technical analysis is the study of past price data to identify chart patterns and trends that can be used to predict future price movements. Most day traders of stocks use technical analysis as a key part of their trading strategy, as it can be a helpful tool in identifying entry and exit points for your trades and help you spot the best moments.
There are many different technical indicators that stock traders can use, so it’s important to do some research and find the ones that work best for you.
9. Stay up-to-date on news and events:
It’s also important to stay up-to-date on news and events that could impact the stock market. This includes things like earnings releases, economic data, and even political events. By staying up-to-date on these events, you can be ready to take advantage of opportunities or avoid potential pitfalls.
10. Have a plan:
Last but not least, one of the most important stock day trading tips is to have a plan. This means that you will need to have a clear idea of what your goals are, as well as how you will achieve them. Without a plan, it can be very easy to get caught up in the excitement of stock trading and make impulsive decisions that can end up costing you money. So, before you start trading stocks, make sure you have a plan in place and stick to it.