T wo Simple Day T rading T ips Giving You M a rket Edge I wouldn't recommend day trading to anyone who is just starting out, however, this doesn't change the fact that many new traders are drawn to day trading like bees to honey. Why is day trading so popular? This style of trading is the only strategy that offers extremely high rates of return in very short periods of time. However, these high profits do come with extremely high levels of risk. If you are determined to day trade, then you need to know a few things to make sure you do everything possible to give yourself a trading edge. Ignoring these tips only places your trading capital at unnecessary risk and increases your chances of suffering losses. Trade with the trend. You've heard it before and might wonder why a day trader needs to worry about the trend. Isn't day trading so short and fast that you don't need to worry about the trend? Wrong! This is a mistake many traders make and they pay for it dearly. Day traders still need to be concerned with the major overlying trend because this trend affects every level of trading. If you trade with the direction of the higher time frame trend, you increase your odds by making sure you trades are going with the flow of the market and not against it. This doesn't mean that day traders can't trade both directions of the market regardless of the trend, however, it does mean that if you trade against the market you greatly increase your chances of suffering a loss. The next piece of advice applies to day traders as much as it does every other kind of trader. Stop losses are necessary and you need to make sure that it is not too close. Markets trend but they typically do not trend in a smooth fashion. There is noise and seemingly random less price action along the way. You may open a trade only to find out that your trade was knocked out and then the market turned and continued on in the direction you had originally traded in. The end result was that you would have had a winning trade, but your stop loss was too close. Always make sure that your stop loss has enough room to give your open trade space to breathe. Putting a stop loss too close makes it easy for the market to knock you out before it continues on.
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Published on Mar 22, 2010
I wouldn't recommend day trading to anyone who is just starting out, however, this doesn't change the fact that many new traders are drawn t...