- In day trading, you should only follow a handful of stocks at any given time. This makes it easier to focus on each stock you trade and keep a close eye on what the market is doing. You may choose to select stocks on an individual basis or use criteria such as market sector or share price to aid in your selection. In general, you should look for stocks with a lot of volatility because these offer more trading opportunities than stocks with low volatility.
- Technical analysis is a broad subject composed of many different techniques and theories. You don't have to know everything about technical analysis, but you should learn a few techniques in order to build a trading system. At the minimum, you should calculate areas of support and resistance for every stock and use some kind of momentum indicator such as moving averages. Support and resistance levels indicate areas in which a price reversal may take place. Momentum indicators help to confirm a possible price reversal and also help traders spot significant price movements when they're just starting out.
- Watch financial news on cable or log on to a financial news website every day before the markets open. This is your "briefing" session. Use the information you receive to gauge market sentiment and stay abreast of any financial news that is likely to affect the stocks you're trading.
- Before you make any trades, establish a trading system. This should include the amount you're willing to risk for each trade and the methods you will use to enter and exit trades. It is very important that you follow your system at all times in order to take your emotions out of your trading. Following a system also helps you build discipline in your trading.
- At the end of the trading day, review all of the trades you made. Analyze your winning and losing trades to determine what you did right and wrong. As you review your trades, you will learn what works best. Use the information you gain to make improvements to your trading system and increase your profits. After your review period, look over the stocks you plan to trade the following day. Get a preliminary strategy in mind for the trades you plan to make and get a good night's sleep.
