As a good day trader, the aim is to close all open positions before the trading session ends. Better still is being able to do so with tangible returns. However, the strong allure of profits should not blindside anyone into forgetting potential risks. 

For a trader to operate profitably in the long term (many do not), you need to maintain a high sense of discipline and consistency. Follow market trends keenly, be very informed, and be very willing to take only reasonable risks.

How to Select Tradable Securities

Determining the type of security to trade is one of the first things a trader should do. There is a variety of tradable assets in the market, and not all assets are suitable for day trading. For a financial instrument to be considered satisfactory, it should exhibit the following qualities:

  • Considerable volatility: The price of the instrument should manifest frequent swings. Conducting technical analysis on individual assets will, most likely, reveal this behavior. A trader can then buy when the price is low and about to start rising and sell when it is high and about to start a downward trend.
  • A high average trading volume: This indicates the number of times the security is bought and sold at a particular period. If the number is significantly large, it means the asset attracts considerable public interest. The price might rise or fall accordingly.
  • Liquidity: Securities with high liquidity should generally be preferred, as this allows traders to exit or enter positions quickly.
  • Newsworthiness: Securities that make news have huge potential. Economic news or company news swings the market price of assets.

Establish a Trading Strategy

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Image via Flickr by trendingtopics

A trader must be willing to spend a significant chunk of time conducting research and analysis. There is no shortcut to gathering information and making sense out of it. The argument here is simple: A trader must set aside enough time to succeed in this business. Day trading is, probably, not great for part-time investors. Factor the following tips into your trading strategy to make it more viable:

  • Determine the amount of capital you will be comfortable spending on a single trade.
  • Decide on a realistic selling point before taking on any long position.
  • Set a stop-loss level—probably not more than 1% of your capital per trade—to avoid incurring huge losses.
  • Do not buy too many stocks as a beginner; it becomes difficult to track all of them.
  • Anticipate losses. They are part of the game.
  • As a novice, do not invest too much capital. Start low.
  • Trust your judgment and learn from any mistakes.

Learn the Trading Mechanics

Most brokers’ trading platforms provide mock trading capabilities to enable beginners to acquaint themselves with the platform. Ensure you understand all the analytics that the system provides. The simulated market environment provides the best opportunity for novice traders to test their strategy. Here, it is important to assess your patience as a trader. Construct probable portfolios and gauge their outcomes. The result should give you a rough idea of the quality of the research conducted.