6 Stock Trading Strategies for First-Time Traders
Day trading, or selling and buying stocks or other financial instruments in the same day or several times a day, is a money and time investment that can be a lucrative source of income. But, if you're first getting started in the day trading market, the ins and outs of this activity can be a lot to learn. Read more about some strategies you can try if you're a first-time trader.
Choose One or Two Markets to Trade In
It can be tempting to jump into several markets when first beginning to day trade. While there are plenty of lucrative markets out there, choosing just one or two to focus on at the beginning allows you to spend your time analyzing and making wise decisions in those markets. The more markets you try to trade in at first, the more thinly your time and energy will be spread.
Popular markets to consider trading in when you first start day trading include:
- The foreign exchange currency market.
- Physical stocks.
- American Stock Exchange.
Set a Budget
Setting a budget prevents you from losing too much of your assets on a trade. It's important to first determine how much capital you're willing to risk on a trade and then enforce that limit when trading. A good rule of thumb is to only risk 1% or 2% of your assets per trade. For example, if you have $30,000 in assets in your trading account, you'd want to risk between $300 and $600 per trade.
Choose the Right Time to Trade
Investors and traders begin placing stock orders as soon as the stock market opens each morning, typically at 9:30 a.m. While this seems like a good opportunity to get in the game and make a trade, you're better off taking the time to analyze any patterns and making trades later in the day when prices are less volatile.
Understand Trading Jargon
There are several terms you should be familiar with when getting into day trading. The most important terms include:
- Support areas.
- Price action.
- Impulse wave.
- Trend line.
- Short trade.
- Tick chart.
- False breakout.
- Long trade.
Take time to understand these terms and how they're used in the stock market and in day trading before jumping in.
Find a Mentor
As with other professions, it can be highly beneficial to find a mentor or group of seasoned day traders who will guide you during your early days of trading. There are many successful day traders out there who are willing to work with new investors. Find one and work closely with them as you develop your stock trading strategies and begin to make trades.
Keep Your Cool
Day trading is a highly stressful and fast-moving activity that can consistently test your emotions and nerves. The best way to be successful at day trading is to make decisions based on logic rather than emotion and avoid impulsive trading moves.
By implementing these steps, you should have a solid foundation on which to begin your day trading career.