Things to Consider Before Tackling Day Trades

March 24, 2018


Comments Off on Things to Consider Before Tackling Day Trades

If the thought of day trading has seduced you and you believe to have what it takes to succeed, it is smart to take it slow for the first few months. Try the field out and see how well you do before making any rash decisions. Experts can only warn people before taking this type of giant financial step; this decision must be carefully thought out and the risks, consequences, and expectations should finely measured.

Realism is a must

One of the most important rules of Day Trading is that people must always enter a “stop-loss” order immediately after opening any new position. This is the most important principle of Day Trading (as well as that of always closing their positions the same day they are opened. A “stop-loss” order is an order that will be triggered when specified.

Using stop-loss orders

This type of order can be used to generally protect a person’s position. It is absolutely essential that people only use “market” orders for their “stop-loss” orders and not with “limit” orders. A “stop limit” order may NOT be executed if the “limit” is too tight or/and the price drops or climbs too quickly when the trader’s trigger price is reached.

It is, therefore, essential that people protect their position and capital by only using “buy stop market” and “sell stop market” orders. If you use a stop limit order, it’s a bit like people who are driving with the belief that their life is protected by their seat belt but they are not sure that it will work because they bought the cheapest one. It is vital that people always define the maximum amount of their possible losses before they enter a trade.

Entering purchase orders

Before entering a purchase order (or short sale) on a broker’s software, clients must have defined the course/price to which they will be willing to take their loss if the trade does not go in the direction they wanted. This must, of course, not be a fixed amount but, on the contrary, should be a very precise, very logical point, based on the “life” and on the “behavior and mood” of the stock that day and the previous days. For more info, see it on this page.