Day trading is one of the most exciting aspects of financial investment. It can be done by anybody with an internet connection and a little knowledge. However, before you begin, there are a few important tips to keep in mind. These tips will help you achieve your goals.
If you want to avoid losing while following your trading plan, you have to think about how you are going to make it work for you. Putting your trades in a systematic and disciplined way is what makes you successful.
The first thing you need to do is to set realistic goals. Set a risk/reward ratio of around 2:1. This will ensure that you break even on every two to three trades. You should also try to limit the size of your trades. Generally, you don't want to risk more than 2% of your capital on a single trade.
It is important to keep your emotions under control. Emotions are one of the biggest enemies of traders. They can lead you to make decisions based on fear or greed. Keeping a trading psychology journal can help you keep your emotions under control. Keeping a trading journal can also help you track your statistics.
Using a calculator like the Profit/Loss Calculator by Hanweck Associates will also help you see how your position reacts to price movement. To get more detailed statistics, you can also use a spreadsheet.
When you are preparing your trading plan, you should take into account your financial and emotional goals. Depending on your personal situation, you may want to consider taking profits early.
Regardless of your goals, it is important to keep a record of your trades. Use a spreadsheet or your own homemade journal to record your statistics. You should also be prepared for a bad loss. Losses are an inevitable part of the business. In fact, they are some of the most valuable lessons you can learn. But, you don't have to let them ruin your career.
Quantify your strategies
When it comes to day trading there is a ton of information out there. It can be daunting to keep track of it all. One thing that can help is quantifying your strategies. Whether it's via a classic spreadsheet, programming, or the holy grail of automated trading, a quantified system can save you from yourself. Plus, a well oiled machine can spot the biggest mispricings in a heartbeat. So, why not take advantage of it all?
One of the perks of being a quantified trader is the ability to run multiple strategies in the background. While this may seem like a gimmick at first, the ability to trade multiple strategies enables you to optimize your investment for maximum reward without the stress of overcommitting. You also get to choose from a wide array of market participants and trade with a more discerning eye.
If you're just getting started it can be hard to know where to begin. Fortunately, there are numerous free tools that can help. Even if you have to shell out a few bucks for an account, the cost is well worth it in the long run. By doing so you can get to the trading floor before most others. Alternatively, you can spend your time developing the skills and knowledge required to become a successful trader. For instance, there are thousands of online courses available from professional trading firms that can turn you into an expert in no time.
When day trading, it is important to avoid correlation. This is because illusory correlation can make your decisions ineffective. So, it is wise to diversify your portfolio as much as possible.
The main idea behind this is to be able to offset losses caused by equities. In this case, the best way to do this is to invest in assets that are not correlated with stocks. Among other types of investments, you can use precious metals, private equity, and options.
A trader can make money by utilizing this technique. However, it is important to keep in mind that you are risking money on each trade. Therefore, it is best to have at least three trades. You can also use correlations to hedge your positions. For example, you can invest in USD/CAD if you want to diversify your investment portfolio.
Another example is the currency pair EUR/USD and USD/CHF. These two pairs move in opposite directions nearly 100% of the time. Consequently, you can take advantage of this relationship by shorting a portion of the second pair. There are many websites that calculate correlation tables. You can also run correlation computations using spreadsheets. It is very simple to do.
However, you should be aware that correlations can change over time. As a result, you should update your correlations every few weeks or a month. If you want to invest in a single asset, you may consider purchasing a long-term bond, such as the US Treasury bond. Similarly, you can buy an index, such as the Dow Jones Index, which tracks a variety of stocks.
Investing in different markets can also help you avoid correlations. For instance, the S&P 500, the Nikkei 225, and the Nasdaq 100 are some of the most popular indices in the market.
Set your trading hours as an independent trader
It's not just the number of trades per month that makes you a successful trader. One of the perks of the lifestyle is a better work-life balance. Having the freedom to choose your own hours is a godsend, especially if you're a parent with young children. For a lot of us, a flexiblity like this is akin to having a genie in the closet.
Aside from being a great time saver, this type of arrangement has also been known to improve productivity and quality of life. The aforementioned has a few caveats, however. As one would expect, being an independent trader requires a bit of an adjustment period. Fortunately, there are a plethora of resources to help. Among those, the best of the best are reputable sites such as etrade and Alpari. Luckily, these sites are staffed with a plethora of professional traders. These guys have a storied track record.