Don´t be lazy

Many people are attracted to the idea of day trading because they see it as easy money. In reality, the day traders that are successful over time tend to be highly dedicated individuals who put in a lot of time and effort.

Be focused

Day trading is intense. Set aside specific days or hours for your day trading instead of trying to do it alongside everything else in your life.

Especially for beginners, it is better to trade with a focus for four hours one day, than opening positions in the morning every day and then getting distracted by your ordinary job, kids, social activities, etcetera.

This is also a question of mental health and staying sharp in the long run. Constantly worrying about your open positions in the back of your head can take a toll in the long run.

If your life is already so busy and demanding that you can´t set time aside for day trading, then day trading is probably not the best choice for you. There are other investment strategies that are easier to fit into that kind of life.

Keep your day trading bankroll separate

Have a dedicated bankroll for your day trading Allowing money to flow freely back and forth between your everyday budget, and your trading account is not a good idea.

Risk management

Your bankroll needs to be able to survive losses. Therefore, skilled day traders usually have rules in place for how much to risk at any given time and how much to risk on each individual trade.

When you start out, a good rule of thumb is to never risk more than 0,5% of your capital per trade.

Example: With a $10,000 bankroll, the 0,5% rule would mean never opening a position for more than $50.

You should also decide how much to keep in open positions at any given time. Having your entire bankroll in open positions will spell disaster if the market takes a dive, even if each individual position is for less than $50.

Don´t try to do it all at once

A common beginner mistake is to jump at every opportunity.

When you start out day trading, you will quickly begin to notice a lot of excellent opportunities for day trading It is very tempting to go along with this and become someone who dabbles in forex day trading, cryptocurrency day trading, stock day trading, derivatives day trading, etcetera. Also, a lot of novice traders spread themselves way too thin within each field. Instead of selecting one or two currency pairs for FX trading, they jump at every opportunity, even if it means exposing themselves to currencies they know very little about.

It is better to start small and then gradually widen your net. Also, remember that plenty of successful day traders simply stick to their highly specialized area of expertise. It is absolutely possible to make a living day trading EUR/USD only – there is no rule that says you have to juggle several currency pairs.

Avoid penny stocks

Penny stocks are very appealing to novice day traders but should ideally be avoided. Exactly where to draw the line is difficult to say, but our advice is to stick to shares with high liquidity if you want to use shares for your day trading. It is not the exact share price that is important here – it is the liquidity.

Shares with a low liquidity are dangerous for day traders, since they can prove difficult to sell when you want to close the position. Low liquidity is less of a problem for long-term investors, since their trading strategy doesn´t hinge on being able to close a position at exactly the right minute or second.

It should also be noted that penny stocks are a popular target for pump-and-dump schemes and similar forms of market manipulation.

Eyeballs on the market

It is a good idea to spend a lot of time simply looking at the market. Just like a sea captain learns to read the sea, you will learn to read the market and begin to notice small things that you were oblivious to before. You will become better at quickly spotting interesting changes – as well as noteworthy market calmness.

You will also learn patterns that tend to repeat themselves day after day. Generally speaking, the prices tend to be quite volatile for a while when a market has just opened for a new trading day. The middle hours are typically less volatile, and then we see a new segment of volatility towards the end of the trading day. Volatile markets provide plenty of interesting opportunities for day traders but are also notoriously unpredictable As a novice day trader, you might prefer to stick with less volatility as you earn your sea legs.

This article was last updated on: November 21, 2022