Day trading is fast. Once potential trading opportunities appear, traders need to trigger transactions with lightning-like reactions. Following these 20 day trading tips, from risk management to trend trading, following these points, your trading success rate will be greatly improved.
1. Get ready for the trading day
As a day trader, getting ready for work is one of the most important tasks of your day. This includes not only analyzing potential trading signals in the market, but also mental and physical preparation and exercise. Do some stretching exercises in the morning to prepare for the trading day. Before the opening of the stock market or the beginning of the foreign exchange trading session, scroll through the chart to see if there are some potential trading signals consistent with your trading strategy.
2. Analyze the first transaction time
The first trading time in any financial market can reveal a lot of useful information about the current trading day. Pending orders placed by traders on the previous day will be executed within the first few minutes of the new trading day, which can provide you with valuable insights into the market direction.
3. View the economic calendar
The economic calendar includes important market events and reports, which can cause extreme market volatility, and volatility is essential for intraday trading. Viewing the most important market report of the day should be a regular part of your morning preparations. Write down or remember the exact time when the report was released to avoid any unpleasant surprises in the future. If the actual number is very different from the expected number, the market will often fluctuate greatly. According to your market opinion, this kind of volatility may be good for you or bad for you.
4. Follow market-related news
Although most day traders use technical analysis in trading, fundamental analysis plays a vital role in financial markets. Fundamentals can form new trends, reverse trends, and cause important support and resistance levels to be broken. This makes it particularly important to pay attention to market news in intraday trading. Remember, understanding the market dynamics will help you conduct market analysis and generate new trading ideas.
5. Look for oversold and overbought financial instruments
The trading strategies of day traders can generally be divided into three categories: downtrend trading, breakout trading and countertrend trading. No matter which strategy you use, finding and trading overbought and oversold financial instruments can have a significant impact on your profits.
6. Trade along the trend
Downtrend trading is one of the most popular trading strategies among day traders, and for a reason-it is very effective. Downtrend trading refers to trading in the direction of a given trend. If the current trend is rising, look for buying opportunities, if the current trend is falling, look for selling opportunities. To determine the current trend, you can use simple technical indicators or analytical methods, such as ADX (Average Directional Index). Markets in an upward trend continuously form higher highs and lower highs, while a downward trend market continuously forms lower lows and lower highs.
7. Counter-trend trading may be risky
Counter-trend trading refers to trading in the opposite direction of a given trend. The goal of counter-trend traders is to profit from short-term price consolidation, that is, they try to sell at higher highs in an uptrend and buy at the bottom of lower lows in a downtrend. When combined with a down-trend trading strategy, counter-trend trading can create more trading opportunities for traders. However, keep in mind that the risks of counter-trend trades are usually higher than those of counter-trend trades.
8. Formulate strict risk management rules
Without perfect risk management rules, even the best trading strategy will eventually lead to huge losses. Risk management helps you control transactions, position sizes, losses and profits. You should not allow any transaction to lose a large amount of the balance in your account, otherwise it will be difficult for you to restore balance.
9. The trading account must bear a certain percentage of risk
In order to avoid losing control, you must take a certain percentage of the trading account risk in any transaction. The golden rule is, never risk losing 2% of your trading account balance. For example, if you have a $10,000 account, the risk of any single transaction should not exceed $200. Place your stop loss exactly at the price level where the total loss of the transaction is $200. Although 2% is your maximum risk for any single transaction, you can reduce this percentage as needed. For traders with larger trading accounts, they usually only risk 1% or even 0.5%.
10. Analyze the potential risk-reward ratio
The risk-reward ratio of a transaction is the potential profit of the transaction divided by the potential loss. For example, if you make a transaction with a potential profit of $50, but the risk is $100, then the risk-reward ratio of the transaction is 0.5. In other words, you have to risk $2 to block the profit of $1.
11. Follow the 6% rule
Although the 2% risk rule per transaction is to protect you from an irreparable loss that may cause your trading account, the 6% rule is to protect you from a large number of smaller losses. The rule stipulates that the maximum risk you take in all open trades should not exceed 6% of the trading account size. For example, if you insist on a 2% risk per transaction, then the total number of transactions you can make at the same time will be 3 (3 x 2% = 6%). However, if you reduce the risk of each transaction to 0.5%, then the maximum number of transactions you can make at the same time will rise to 12 (12 x 0.5% = 6%).
12. Use pending orders whenever possible
Pending orders include stop-loss orders and limit orders. When certain conditions are met, these orders will become market orders. Pending orders are very popular among breakout traders. Just place the pending order above or below the potential breakthrough point, and once the price reaches the pre-specified price level, the pending order will automatically execute the market order. In this way, traders do not have to wait all day for breakthrough transactions in front of the trading platform.
13. Keep recording the transaction diary
If you use the right method, the trading diary is a good way to improve your intraday trading skills. Generally, the transaction log should include all the transactions you have completed in the past, as well as their entry levels, stop loss and profit levels, the reason for the transaction, the size of the position, and other information that you think is relevant.
14. Regularly review transaction history
If you often keep a transaction log, don't forget to review your transaction log from time to time. For example, it can be done once a week or a month. Reviewing these logs will help you determine the cause of the transaction failure and avoid repeating mistakes.
15. Wait for confirmation before entering the market
Have you found a trading signal that can be traded? Everything is in line with your trading strategy, and you have determined the level of stop loss and take profit orders? Great! But before you enter the market, make sure to check and Make a transaction after confirmation, which can significantly increase your success rate.
16. Control emotions
Trading in accordance with emotions is one of the most common mistakes made by day traders, which greatly affects their trading performance. Emotions such as fear and greed can lead to heavy losses for traders and greatly reduced profits-both of these behaviors will cause significant losses to your trading account. The best solution to prevent emotions from interfering with trading and keep a cool head is to develop a clear trading plan and only trade in accordance with your strategy.
17.Always use stop loss
Whether you are intraday trading, swing trading or scalping trading, you should use stop-loss orders in all transactions. Stop loss can prevent large and unpredictable losses, and it plays a vital role in risk management. If there is no stop loss, you will not be able to conduct an accurate risk assessment for each trade, nor can you apply the 6% rule.
One of the biggest mistakes of day traders is that they do not protect their unrealized profits. When you open a trade and make a profit, these profits are still not your own. These profits will not be realized until you completely close the position or move your stop loss above the breakeven point. Once this operation is performed, unrealized profits will be realized and protected.
19. Do not trade during important market reporting periods
Day traders live on volatility, and market reports usually provide the necessary volatility for profitable transactions. Without volatility, there is no risk and no profit to make. However, trading during important market reporting periods may pose an unnecessary risk, because it is well known that the market tends to fluctuate significantly within a few seconds after the release of a major report. These peaks usually cause spreads to widen and fall sharply, and trigger stop-loss orders.
20. Overnight position trading may be risky
Day traders are called intraday traders because all positions must be closed within the day. If a transaction is not closed before the end of the trading day, you should close it and assume the loss or profit. Holding positions overnight will expose you to market fluctuations, which may be detrimental to you.