Online Day Trading Tips
2012 is expected to be a year of financial instability in Europe, the United States and China -- and day traders couldn’t be happier.
Instability leads to fear and fear makes rational people act irrationally. Nowhere is that more true than in the financial markets where fearful investors often sell when they should buy or do nothing or buy when they should sell or sit tight. That sort of irrational behavior leads to opportunities for people who keep their emotions out of investing. And day traders certainly like to think of themselves as cool and unemotional when it comes investing.
For those who may be unsure, day trading refers to buying and selling financial products – stocks, stock options, currencies, commodities, to name a few – within the same trading day or in some cases, overnight. The people who do this are called day traders or pattern day traders. To be considered one, you must buy or sell at least four or more times during a five-day period.
Day trading used to be something that only financial professionals did, but in 1975, the U.S. Securities and Exchange Commission made fixed commission rates illegal, giving rise to discount brokers that offered reduced commission rates. With the popularity of electronic trading, day trading has become increasingly popular with at-home traders, some of whom quit their full-time jobs to become full-time day traders. In any event, day trading and online day trading have become synonymous.
You may not be ready to abandon your full-time job for day trading, but if it interests you, you should learn everything you can about it. It can be lucrative, but a lot of people have lost a lot of money doing it. To start your day trading education, it helps to look at three things: strategy, psychology and technicalities.
If you want to make money day trading online, you need a plan, which must be thorough and guide you at all times, regardless of what is happening on any given day. That’s step one of your strategy. Step two is to follow that plan. That doesn’t mean you’ll make money every day if you follow the plan, but if you have a solid plan and you follow it, you’ll often come out ahead in the long run, and that’s what matters. Day trading is not, as many people think, about making money every day, though that would be nice. Day trading is one of those jobs where you’ll go to work some days and not making anything. In fact, you may lose money. Just don’t abandon your plan. Don’t have a plan? Any number of online companies would like to help you create one.
You need to have the right day trading psychology to make money day trading online. Another way to look at this is to remain disciplined. Don’t ignore your plan because you happen to be bored or excited or scared. And don’t trade online when you are sick or tired. Not all day traders are cool cucumbers – despite what they might tell you – so don’t let emotion cause you to stray from your plan when it comes to entering a new trade, prematurely exiting a trade or changing the trading plan in any way. The more you can control your day trading psychology, the more likely your chances of making money.
Those who day trade online must make sure their hardware and software are all working right. There are about 250 days per year when you can day trade, and the day your computer crashes is the day you could have made a bundle online. Dealing with technicalities also means guarding against human errors which include misspelling a name or ticker symbol, entering an incorrect price or making other data entry errors. (This is why you shouldn’t day trade if you are sick or tired. These human errors, which can cost you a lot of money, are more likely to happen then.)
A lot of people who are curious about day trading ask if there is a best time of day to do it. The answer is yes and no, depending on whom you ask.
Those who say no rightly point out that there are way too many variables to consider to answer that question with any degree of certainty. But others say the time when an investor makes a trade can – and often does -- affect the outcome of the trade. They caution investors not to trade first thing in the morning or late in the afternoonwhen market volumes soar and prices can become volatile. Sure, you can make big money doing that, but if you really don’t know what you’re doing, you can also lose big money. The middle of the trading day– 11 a.m. to 2 p.m. -- tends to be the most stable periodof the day for buying and selling stocks since that’s when people are waiting for news that may influence the markets. And stable prices may lead to more predictable returns for investors.
The bottom line is that day trading is an extremely risky activity. Make sure that you do all of your homework ahead of time. This will help to reduce some of your risk of losing all of your investment capital.