As inflation rates are at their highest, people are hunting for ways to earn extra income to counterbalance the rising cost of living. A recent survey by Qualtrics shows that 34% of UK workers have actively sought a second job. Additionally, the research highlights that 35% of full-time workers have explored opportunities with higher salaries, and 15% are considering pursuing a second job. 77% of respondents were willing to work overtime or extra shifts to increase their take-home pay. But can day trading be that source of additional income?
Day trading is a risky but potentially rewarding way to make money. Here is how to become a successful day trader.
10+ Best Tips To Be A Successful Day Trader
1. Pick the Right Broker
Many top trading platforms UK enable you to trade forex or stocks, typically for a commission on each trade. Picking the right trader allows you to deal with peace of mind. You settle for a broker with favourable rules and regulations and one that makes it easier for novice traders to enter the market.
Consider the following when picking your preferred broker:
- Demo Account: Lean to trade by simulating the trading experience. While the simulated experience may not wholly replicate the actual market, it enables you to get the experience and learn to use the various tools for trading before you transition to a live trading account. Most brokers offer this option.
- Low costs: Costs eat into your profit, especially if you trade frequently. So, pick a platform with lower commissions.
- Investments Options: Pick a broker with various options, allowing you to choose the stocks or forex pairs you want and the preferred size of your trades.
- Minimum Balance: Since you are just starting, you don’t have a lot of money, so go with a broker that does not have account minimums.
- Research tools: The best brokers offer research tools, including stock screeners, news feeds, and analyst ratings, to help you make informed investment decisions.
2. Start Small
Most beginners ask how much money anyone needs to start trading online! By trading, we mean buying and selling stocks or forex!
But there’s no straight answer to this. But start with as little as £500, but £5000 will be a modest amount, considering that you sometimes lose cash before becoming well conversant with the tricks of the trade.
Be well aware of the risks and have adequately learnt the risk management tricks before transitioning from a demo to a money trading account. That’s why you should start small and trade with your surplus. Never break your savings or borrow money to start trading.
3. Learn and Keep Learning
As Jesse Livermore says in his book ‘Reminiscences of a Stock Operator, the game will teach you, but it won’t spare the rod while at it.
Knowledge, and not just about the market but your tools of trade, will help you learn quickly. Your success depends on your knowledge and understanding of the market and how you leverage the available tools in your trades. Lucky for you, many resources online, including trading guides, help you take these baby steps.
Don’t jump into the market even after identifying your preferred trader. Learn and understand the market. There’s a learning curve in day trading.
4. Dedicate Your Time
While there are automated trading tools, day trading is a high-risk, high-reward labour-intensive exercise that requires dedication and discipline. Only serious traders make money in the market, which means dedicating enough time to research, learn and execute a trade. It would help if you also created trading schedules that best work for you.
But auto trading tools are helpful, especially when you can’t control your emotions. It’s advisable to avoid trading when under stress. Also, don’t overtrade.
5. Avoid Less Liquid Stocks and Currencies
In trading, liquidity means how easy it is to buy or sell a security. Like stocks, some currencies are not as easy to sell as others, and you may lose more money if you can’t sell when necessary.
In forex, currencies have varying levels of liquidity, and this depends on whether they are significant, minor and exotic pairs, which include emerging market currencies. In stocks, penny stocks are cheap to buy, but for a day trader, they are a no-go zone because they are often less liquid and very volatile, and it’s difficult to predict their price changes. For a day trader, it’s better to always go for stocks with higher implied volatility as they are likely to move up and down more than average.
6. Timing is Everything
You are like a hunter in day trading, waiting for the perfect opportunity to pull the trigger. So, patience and attention to detail are the keys to success. Patience and knowing when to jump in separates average traders from good ones.
Day trading is a high-risk, high-reward game requiring a lot of patience and knowledge. Perfectly timing your trades gives you an edge. But it would help if you used technical and fundamental analysis and indicators to predict trends.
Sometimes things don’t go your way. Patience will prevent you from panicking and selling your securities at a loss. A little foresight and the skills you pick will also be helpful.
7. Exploit Automated Trading Tool Features
To protect your investment and minimise potential losses, implement these two strategies. They can safeguard your investment and mitigate potential losses:
- Limit Order: It’s essential to specify the quantity of stock you want to trade to ensure your order is executed quickly and without complications.
- Stop Loss Order: The automated order acts as a safeguard, preventing unnecessary losses from occurring. Remember to exercise patience during trading, as market adjustments can take time. If things don’t initially go as planned, stay calm and avoid frustrations.
Always have a fallback plan to prepare for unexpected outcomes and help you maintain focus and composure during challenging trading situations.
8. Adapt Basic Day Trading Techniques
Up to this point, you can engage in successful day trading. But here are some of the important techniques you can use as a new-day trader in pursuit of making profits:
- Trends: When prices are rising, buying is a common strategy, and when prices are dropping, short-selling is popular. Our assumption as traders here is that if prices have been moving in a certain direction, they are likely to continue doing so.
- Contrarian: As a contrarian, you buy during a price drop or short sell during a rise, anticipating a change in the trend. You sell when you believe the prices have risen too much, and they will eventually reverse and fall. Likewise, you buy when prices fall too much, and the market expects them to reverse and rise. In a nutshell,
- Scalping: With time, you should be able to use the technique to exploit slight price differences that arise from the bid-ask spread. It’s an opportunity that hardly lasts minutes, so trading requires dedication.
- Be alert: Keep your eyes on the news to anticipate the price movements and act accordingly to benefit from the increased market volatility.
9. Have a Plan and Stick to it
Day trading requires an elaborate plan. Detail your goals and objectives before trading, ensuring you stay on course and disciplined in your strategies. Always seek to learn more to understand the market, its trading tools and how to find good opportunities. Trust your plan, and don’t be quick to change it. It can take time to be successful, but you’ll eventually become a successful day trader. However, it’s not wrong to tweak your strategy if it exposes you to high risk. The trick is to take only risks you can handle. So, have a hazard limit, entry points, when to use a stop-loss order and more.
10. Learn from Successful Traders
Online resources, newspapers, magazines and trading guides should be your friends. Success doesn’t come easy, but if you follow the steps of the best investors and observe successful traders, you, too, can become one. Losing on a few trades should not kill your motivation to succeed. After all, day trading is a high-risk activity; make sure you don’t lose all your trading money in a few trades to have an opportunity to recoup any potential losses.
Can You Make Money Day Trading?
Let’s address the question: Can day trading help you beat inflation? Day trading involves high risk but can potentially yield substantial profits in a short time. However, approach it with caution and realistic expectations.
Successful day trading requires skill, knowledge, a solid trading strategy, an understanding of market trends, technical analysis, risk management, and discipline. While it may offer increased income, it also carries inherent risks. Beginners often face losses due to inexperience, emotional decision-making, and inadequate risk management. So, it’s not a guaranteed path to financial success and should not be relied upon as the sole means to meet living costs.
Before considering day trading:
- Educate yourself about the markets.
- Seek guidance from experienced traders or professionals.
- Adopt a cautious approach.
It is essential to have a well-diversified financial plan that includes other income sources, savings, and investment strategies to mitigate risk and ensure financial stability.