Electronic Day Trading Secrets
The world of day trading is an exciting one, where a successful trader can make a great deal of money in a short period of time. With the potential for great gains comes the risk of great losses, however, making it important to follow the basic rules of day trading to maximize your chances of profit.
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Prepare During the Close
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Although the open and close of the stock market ensures that your day has an earliest and latest possible time for trading, that doesn't mean you can only work during the hours the market is open. Reading reports on the day at the close of the market, as well as trending information and early trading numbers in the morning before the market opens, allows you to enter into the day better informed to make the right decisions.
Be Fearless
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Unlike long-term trading, where the fluctuations over the course of a day are often not seen by the portfolio owner, who is not monitoring the stock from minute to minute, day trading allows for drastic swings in fortune. In order to perform successfully as a day trader, you must be ready to accept that there will be deals made where you lose money, and that as long as you don't allow one deal to bankrupt you, there's always the next investment to recover with.
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Stay Level
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With the changes in value of stocks during the day, a trader will often experience many stocks that lead to a big loss, and many stocks that result in a large gain for the trader. It is important to always maintain a level head through the ups as well as the downs. While a defeatist attitude can be harmful when trading, so, too, can becoming too high on yourself and thinking you are "in the zone" and unable to err with your buying. Always trust your numbers and analysis, not whether you are on a "hot" or "cold" streak.
Build a Base
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When riding a hot stock that you think is still due for more rising, it often pays to invest more heavily in the stock with additional shares. If the stock begins to fall, however, the extra shares amplify the risk involved. Using a declining shape in the purchase of your stocks, you will always have more shares purchased at a lower price than at a higher price, so if the value begins to fall, you can get out without a loss. For example, buying 5,000 shares of a stock at 20 points, then wanting to invest more at 25 points, you can buy 1,000 shares. If the stock begins to fall and you sell at 22 points, while you will have lost $3,000 on the more expensive shares, you will still be up $10,000 on the base shares, keeping you in the black.
Don't Be a Hero
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Seeing a stock that is plummeting in value, it is a natural inclination to think that it has to hit bottom at some point, at which point it can only go up for profit. Attempting to time a falling stock is a highly risky proposition, however. The stock caught attention by falling at a precipitous rate, meaning that mistiming the buy will leave you invested in a dive-bombing stock. It is best to avoid falling stocks and not try to make the heroic bottom-level buy.
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References
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