How to Use Entry Strategies When Day Trading
You know you want to day trade, and you have the requisite $25,000 in a margin account as required by the SEC for traders who want to buy and sell the same stock within 1 trading day. Now you just need strategies to enter the market.
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Instructions
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Seek out volatility as a day trader, looking for stocks that have a rapidly fluctuating price. Once you feel that you can confidently predict which way the stock will move, you can buy and sell to capitalize on this fast-paced volatility.
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Seek out prices with a tight spread. A spread is the difference between the buying and selling price of a stock. In this case, you want consistency, so that you can eventually sell a stock without risking a depressed selling price.
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Use entry strategies such as scalping (selling the moment the stock shows a profit) if you know very little about the company and have no idea how its trends have been. You don't know if this price increase is a spike or the beginning of a trend, and you don't care. You simply want to buy in enough volume for it to be worthwhile to earn a small profit on each share.
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Try another of the most popular entry strategies, "fading," when you notice a sharp spike in a stock's price. Fading means you think the spike is short-lived and you are going to buy the stock short. Buying short means you can trade it now and pay for it later. Essentially, you borrow it from someone, sell at the temporarily (you hope) elevated price and then buy it back at lower prices later.
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Try other entry strategies, such as news trading, when you are ready and willing to stay on top of world and market news developments. Whichever method you use, some traders stress that you must stick to one approach and get to know its strengths and weaknesses intimately to profit from the market and from the very risky practice of day trading.
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Tips & Warnings
If you are unsure of whether or not you can keep up with some of the more aggressive strategies for day trading, you may want to start with swing trading. In swing trading, traders trade on a daily, weekly or even monthly basis rather than use second-to-second trade execution.
