Posted by forex at 3:40 AM
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1. Practice with a simulator. No beginner trader is ever as good as he thinks he is, and even the most experienced traders will test new strategies. Also called paper-trading, a simulator allows a trader to make imaginary trades and then track the performance. Though nothing exactly simulates the stress of having real money on the line, simulators are among the best ways to gain experience.
2. Get a platform and a secure Internet connection. Most day traders use at least one computer, but commonly two or more. On these computers they run complex trading software that offers real time price information and allows the placement of buy and sell orders. Different platforms specialize in different markets, whether it's currencies, futures, or stocks. A trader should be proficient in the platform best suited to their markets and strategies and have backups, since platforms do occasionally go down. To the best extent possible, have a reliable Internet service provider, and a backup location in mind if needed in an emergency.
3. Set a schedule. A day trader's daily routine can be as flexible as the markets. Electronic communication networks afford access to markets around the clock and traders can tailor their trading schedule by trading in the markets open around the world at whatever time suits them. Thus, many day traders find it quite easy to spend a sunny day at the beach or the golf course and trade in the afternoons and evenings, or to trade early in the day and enjoy nights off. Of course, this is the sort of confidence that arises from considerable experience.
4. Master a few strategies, then branch out. Most traders combine technical analysis, which relies on finding patterns in price movements and determining opportune entry and exit points, with other strategies. Depending on their technique, a trader might also spend a considerable amount of time reading, listening or watching market-related news or conducting other research. The best traders know their own temperament and risk tolerance and stick to strategies that suit them. Expanding from a core competency, traders can learn new strategies and markets carefully without risking their entire operation.
5. Use leverage. Futures trading is popular among day traders because it allows them to control large amounts of stock or options with a small amount of money. The same is true for trading on margin. Leverage can make a good trader a lot of money in a short amount of time, but it can be a double-edged sword. Trading on margin or using leveraged accounts can mean more than just wiping out your initial investment--it's possible to lose many times more money than you put in and actually wind up in debt.
6. Manage risk. Cash is the lifeblood of the trader, and there's nothing so catastrophic as losing huge amounts of cash--even if it's money you can afford to lose. No cash means no trades, so one of the most important activities of a trader, especially a beginner, is managing risk and limiting losses through the use of stop losses and options. Some even go as far as to say that the most important aspect of day trading is capital preservation, and those who can avoid losing will eventually find ways to win.