A day trader takes advantage of small, daily fluctuations in stock price by opening and closing multiple trades within the day to make a profit. Typically, day traders avoid holding positions for lengthy periods, preferring instead to buy and sell within the day. It is a great option for individuals who want quick returns as long as they are willing to miss out on larger profits, which are generally earned with a longer-term strategy.
As our internet infrastructure grows, any Kenyan who is interested can become an online day trader and supplement his/her income with profits from it. If you are a novice trader who wants to begin day trading, here are a few tips to get you started:
1. Trade amounts you are willing to lose
You will need to set some funds aside specifically for day trading. Ensure that you do not need these funds for anything else because there is always the risk of losing it. Some traders transact with money intended for essential needs such as school fees or rent because they assume that they will recover it easily and make a profit on top. However, if things do not go their way, they will have dug themselves into a financial hole.
2. Give yourself room to learn
You are a beginner, and mistakes will be inevitable. Start small, giving yourself room to make these missteps and learn from them. The key is to keep them small so that you are able to recover easily and continue trading. This is the only way you will gain experience in the field.
3. Don’t make it your sole source of income
When you are starting out, do not expect day trading to meet all your financial needs. Doing so would be setting yourself up for disappointment. Day trading as your sole bread earner will put more pressure than is necessary for you to succeed and this will disrupt your ability to make rational decisions. You may have some initial success if the market is on a sustained bull run, but until you see how your strategy performs during market turbulence, it would be wise to play it safe and rely on other sources of income.
4. Educate yourself
Aside from understanding basic trading principles, you will need to know the latest investment news and events which are likely to affect price movements in the stock market. Seek out information proactively from credible business and financial news sources. This way, you are making informed trading decisions.
5. Timing is everything
When the markets open each morning, the orders placed by traders and investors are executed, which causes some volatility. A day trader with some experience will be able to notice patterns and select trades that are profitable. However, newcomers may struggle to see them and so it is advisable to monitor the markets without actually trading in the first hour. The middle hours of the day are usually more settled, until the closing bell approaches at which point movement increases. While trading rush hours are full of opportunity, avoid them at first until you learn the market dynamics.
In conclusion, while you will not become an immediate success at it, if you take some time to learn the mechanics behind it, day trading could be an ever-present source of income. However, keep your expectations realistic, because it has a steep learning curve for beginners. Understand your risk tolerance, the resources available to you, and your goals. With that, plus some of the tips above, you should be on your way to becoming a successful day trader.
Nice nuggets for beginners.