Posted by forex at 8:27 AM
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1. Before you buy the first stock, establish parameters that you will follow, then evaluate your criteria for success. Many day traders when they are just beginning will review them quarterly, while seasoned one will do so each year. Then, evaluate your performance by how well you have stayed with your strategies. You will be amazed by how you have diverted from your own rules, leading to many of your losses.
2. Pick a stock that has a low price and is very volatile. For example, a favorite of many day traders is Sun Microsystems. The shares are very inexpensive and it is a stock with a lot of daily movement. If the stock is selling for $5.20, or four percent ($.20) higher than its value when it opened, you would have made a quick four percent on your investment if you had bought the stock at the opening and you just sold it.
3. Set a target price, then stick with it. Your psychological make-up will largely determine this. If you are a risk-taker, you will hold on to a stock longer than someone who is more risk-averse. Be true to yourself because many people burn-out on day trading, or lose more than they can afford. While you may hold a stock longer than others, it must be sold by the end of that day if you consider yourself a true day trader.
4. Use stop-loss orders to avoid free-falling stocks. This is particularly important for those day traders who are buying stock on margin. A stop-loss means that your stock will be sold when it reaches or falls to a predetermined level. You can either set a stop-loss mentally that will trigger the sale of a stock when it has underperformed, or you can establish one with your brokerage company. A day trader will use stop-losses to limit the amount of loss he can either mentally or financially sustain. If a stock is rising and you have placed a stop-loss order with your brokerage house, you can always revise it to accommodate the increased price, as long as you sell it by the end of the day.