Lessons on Day-trading Successfully
Congratulations, you have decided to grab the proverbial Wall Street “Bull” by the horns and enter into the fast paced investment world of day-trading. Many of you may be transitioning money from CD’s, savings accounts, IRA’s, 401k’s, or any other patently conservative fiscal organs into the capital you will need to begin trading.
Others will be discontinuing the service provided by their broker and moving this previously managed cash into a personal online brokerage account. Presumably, you have taken this step in order to exercise more control over your money and see higher capital gains.
These goals can be realized by anyone who is willing to sit down and become familiar with the different types of sectors and companies that comprise the stock market. Below I will list 11 lessons that any day-trader will ultimately learn throughout his or her experience, and by taking heed of these points you will be able to hedge much of the assumed risk that comes with daily market investing.
1) Pick the right trading platform (online brokerage).
-First things are first. The commission price varies among brokerages and if you are averaging 6 trades every 5 days at $13 a trade you are losing $2,190 every year before any gain or loss from the sell of stock. Be sure to find a reasonably priced brokerage with stock screening tools that fit your needs. One of the lowest priced brokerages around is OptionsHouse with $3.95 commissions.
2)Avoid Stocks Near Their 52-Week Highs.
-When buying a stock you are looking for future growth value, and if a stock is priced near its highest 52 week price point there is little room for growth, thus less potential to earn money.
3)Look For Stocks With High Volume.
-The volume of a stock is the amount of shares that people are buying and trading per day. It is beneficial to buy a stock that many people are asking to trade, so that when the time comes to get rid of a stock it will be easy to find a buyer at the price you choose to sell it at.
4)Locate The Resistance Points Of The Stocks Price Before Buying.
-Buying a stock at a price that has historically been a starting point of a negative trend is ill advised. Many traders are wary of buying at these points, which means lower chances of high buy volume and, consequently, a lower chance for gains.
5)The Price Of A Stock Fluctuates According To What Buyers See While Researching.
-While gathering information about a company or commodity keep in mind that what you are seeing sways others opinion as well as yours. It is obvious that when the amount of homes being built in China rises sharply the demand for copper will follow. Note that companies frequently mentioned by large brokerages as industry leading producers and exporters of copper to China are more likely to be chosen by buyers, which means a higher percentage rise in that companies stock price relative to competitors. MSNBC has a comprehensive finance section where you will be able to keep track of breaking news for many companies.
6)Large Gains Are Made On Earnings Day, If You Do The Research.
-Finding information that supports a company’s positive, projected quarterly earnings is a good sign that they will meet their mark. If a company vastly over projects their gains it could mean a large drop in stock price the day their earnings come out and likewise a steep increase if they meet or beat that projection. Reduce the risk of investing in the company before earnings day by supporting your pick with news, facts, and past company reports.
7)Always Be On The Look Out For Possible Mergers or Acquisitions.
-Some companies produce complimentary inputs to other larger corporations. For instance a small start up that has an innovative patent on semi-conductors but not enough capital to swiftly grow their market share. Acquiring this company in order to upgrade or advance the current semi-conductor’s a large company already uses is mutually beneficial for both. Buying the smaller company’s stock early will almost always end in substantially large gains if they are acquired.
8) Get Out Before Greed Sets In.
-Prolonging the sell of a stock that is rising steadily can be disastrous for a day-trader. By pledging to sell within a certain percentage of gain range before the purchase, an investor can minimize last second losses and ensure steady returns.
9)Hedge High Volatility Stocks With ETF’s Or Mutual Funds.
-Keeping a portion of your money in an ETF or Mutual Fund will assure that occasional losses from unpredictable fluctuations in the market do not wipe out your investment dollars. Several ETF’s and Mutual Funds provide intelligent, diverse holdings that allow for modest to large gains in the short run. Here are a few worth checking out: Top Earning Mutual Funds for 2011 & Top ETF’s for 2011.
10)Filter Out Market Noise And Focus On A Company’s Long Term Opportunities.
-Many investors fall victim to selling too low because of news headlines damning the company or sector they have bought. Ask whether or not these findings are a hindrance on the company’s long term plans before deciding to sell. Remember, most people buy a stock with intentions to hold it for a long time and are oblivious to these day by day blurbs. As a day trader you must be able to differentiate what news will turn off these long term buyers to the stock and what is merely media fodder.
11) Always Fill Out A Stop Limit Order.
-By filling out a ticket for a Stop Limit or Trailing Limit you are setting a price at which the brokerage will automatically sell your stock at if the price point falls to this amount. This is useful in a case where large gains have been made on a stock and you would like to safeguard a certain percentage of those gains against a rapid sell off. Here are two sites that will explain these concepts in further detail: Stop Limit Orders & Trailing Stop Limit Orders
Day-Trading can be considered somewhat of an art and the individuals who practice responsible, adept investing will consistently find their that their portfolio worth has grown at the commencement of the year. By staying vigilant when keeping track of world/company news and relative sector economics you will see the means by which you obtain these gains grow into a trustworthy set of skills that will benefit all of your future investing endeavors.