10 Steps To Becoming A Day Trader

I will never make that mistake again. Brokers on occasion have different definitions for active or day traders. How much capital you need varies by market, and whether you want to day trade or swing trade. It works ok when markets are rising, but you need an exit plan for when the market falls. Day traders are different from active traders who may hold position for multiple days, or from investors who invest for longer periods. Risk is the potential loss on a trade, defined as the difference between the entry price and stop loss price, multiplied by how many units of the asset you take called position size.

This article will teach you how to become a successful Forex trader and show you the best trading practices for beginners. In fact, since you're reading this, you are already on the right path to becoming a successful Forex trader.

Step 1, understand how currencies are traded

Forex is one of the most volatile type of investment markets and one of the most exhilarating experiences in the world. With great liquidity and immense margins, it is one of the most effective ways to make money in a market, and easily the quickest way to throw money away.

Here is a simple, three-step guide on how to become a forex trader. First, you have to understand how currencies are traded. There are three critical terms to learn: Each quote is composed of two parts, the pair and the rate.

Each pair signifies two different currencies. A pip is the smallest increment of a pair. All forex markets of any liquidity have a spread of some sort, and oftentimes a broker will widen them slightly to make a profit. This is equivalent to a stock broker charging per-trade. So in order to be profitable, you will need to recoup the spread. After all, what investor has not dreamed of becoming a day trader—working comfortably at a home computer, being your own boss, watching profits roll in?

While many aspire, few actually succeed. In this article, we will discuss ten steps to take before becoming a day trader. Day traders are different from active traders who may hold position for multiple days, or from investors who invest for longer periods. Day traders also use leverage to increase their intraday trade exposure.

Conduct an Honest Self Assessment: Successful day trading requires a combination of knowledge, skills, and traits as well as a commitment to a lifestyle. Are you adept with mathematical analysis, full of financial knowledge, aware of behavioral psychology in yourself as well as others , and do you have the stomach for entrepreneurship? Contrary to the perceived notion of an easy life or easy money , day trading actually requires:.

The right mindset is the most important and the very first requirement in becoming a day trader. Begin by conducting a self-assessment on the above mentioned points. Unless one is prepared to devote time, self-learn and be mentally prepared to take risks and suffer losses, do not try day trading.

No one can generate profits consistently. Intermittent and extended losses are part of the day trading game for example, a day trader may suffer eight loss making trades in a row and only recover with profit on the ninth trade.

To handle these risks, a day trader must have a sufficient cushion of capital. As Van Tharp explained in Trade Your Way to Financial Freedom, entering the trading world with only a small amount of money is a sure path to failure.

Novices can start with smaller amounts, depending upon their selected trading plan , frequency of trading, and other costs they bear. Day traders need a solid foundation of knowledge about how the markets functions. From simple details like exchange trading hours and holidays to complex details like the impact of news events, margin requirements , and allowed tradable instruments , a trader needs to have a wide knowledge base.

Understand the Securities to Trade: Stocks , futures , options , ETFs , and mutual funds all trade differently. Apply Disciplined Decision-Making Discipline and dispassion are essential for success for traders who spurn automated systems to make their own decisions. Part-time traders are advised to take profits when they materialize instead of anticipating wider spreads and bigger profits.

This requires a degree of self-discipline in fast trending markets where favorable spreads can widen. Successful traders take profits when they can because a trend can turn around instantly due to unforeseen external events.

Trailing stop and stop market orders may be imposed to protect against sudden market reversals and to minimize risk, but as mentioned previously, there's no guarantee that an order will be filled at the anticipated price. Part-time traders with little or no experience are advised to start trading small amounts of currency.

By opening a mini forex account , which requires a smaller-than-standard cash deposit, traders can control 10, currency units the standard currency lot controls , units of currency. The potential profits and losses can be substantial due to the leverage offered to traders, which can run as high as to Leverage allow traders to buy currency lots on margin , permitting them to put up only a fraction of the cash represented in a currency lot.

However, traders should be aware of the inherent risks that come with taking in too much leverage. For more insight, check out " Forex Leverage: Discipline, dispassion and trading the appropriate currency pairs based on your daily availability are the hallmarks of a successful part-time forex trader.

For beginners, an automated trading program is considered the best way to break into forex trading, at least until there is a greater level of comfort with trading procedures.

The Bottom Line

Final Word on Being a Part-Time Day Trader You can easily day-trade on a part-time basis with stocks, futures or forex. Learn the times of day that offer the best trading opportunities for your trading strategy. How Much Money Can I Make As a Day Trader? – Here we’ll look at income potential for stock, forex and futures day traders. Let’s face it, this is what traders and potential traders want to know–“How much money can I make as a day trader?”. Although forex trading occurs 24 hours a day throughout the week, it's best to trade during peak volume hours to guarantee liquidity. Liquidity is a trader's ability to sell a position, which is.