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Step 1
Assess the volatility and liquidity of your potential stock selection. It's recommended that the security have high trade volume (liquidity) and a tight spread (difference between a securities bid and ask price). Use a stock's daily price range to help ascertain the security's potential trade risk and profitability.
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Step 2
Analyze the stock's movement to determine the best point of entry. News, price action and order placement are important areas to analyze. Tools such as intra day candlestick charts, Level II Quotes & ECN and Real-Time News Service address these areas.
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Step 3
Determine a price target by taking into consideration your trading strategy. Some common strategies you may want to review are scalping, momentum, fading or daily pivots.
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Step 4
Reduce slippage (when market orders are executed by traders at worse than expected prices, which can be seen with highly volatile stock) vulnerability. Stop loss orders protect your from sharp price movements, unlike market orders. You can view movement drops with the Level II/ECN tool. Furthermore, set a maximum loss you're willing to loose for the day and halt trading for the remainder of the trade session when you meet that point.
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Step 5
Evaluate your trading strategy often. Most day traders don't profit from day trading when transaction costs are factored in to the net proceeds. A well-defined strategy helps troubleshoot problems and refines a trader's short-term strategy until consistent profits are generated and risk is reduced.
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Step 6
Be aware of day trading risks. Expect profit losses, as it takes time to hone your day trading skills. Fifty percent of all day traders are unsuccessful, but that's not to say the more disciplined you are at sticking to and refining your strategy that you can't beat those odds.
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Step 7
Consider taking a day trading course. It will provide you with the stock market basics all the way to advanced trading strategies. The course will also bolster your confidence.
