If you know nothing or are hesitant about investing, then we’ll help get you up to speed in becoming more knowledgeable.
Our economy here in the United States, as well as in other developed countries, is hinged on trading. Trading in the investment world is the act of swapping a particular financial instrument known as a stock (small piece of a company) for money.
This process is driven on a two-way street, with investors swapping cash for stocks, while companies return dividends (percentage of earnings) to stockholders.
Along with stocks, other tools of the economy can be traded as well.
When done the right way, trading can offer you to a comfortable lifestyle and retirement.
During the introduction before the brief explanation of what investments are, we stated that the economy is hinged on trading. “Hinges” keep doors attached to walls; well, they are important not only for doors and walls, but for the economy as well.
Two Types of Major Trading
There are two major forms of trading.
How to Learn About Day Trading
What is day trading? Day trading is the act of trading money for financial devices (those that were mentioned early: commodities, futures, options, and currencies) in the hopes of obtaining a profit – all in the time of one trading day.
So, instead of waiting 30 years to end up with 100k in a failed 401k, day traders are trading to win hundreds or thousands of dollars a day.
Now do you want to get into trading? This is how you can get involved.
Firstly, there won’t be any licenses, certificates, or organization that you will need to be affiliated with. Those types of credentials are only needed if you want to manage finances for others.
What do you need to get started you ask?
How Much Money to Start Day Trading?
You will need a minimum of $500 to open an account with either of these companies. You will need to make a deposit usually within about 60 days of opening the account or it will close. The best vehicle to fund your day trading exploits (if your current income is not substantial) are side jobs or hobbies that earn you some extra cash.
Once your account is setup, you are ready to go. Although you should do some preliminary research before you jump into the area you want to trade in, there are thousands of specialized books to help new day traders learn about how stocks and markets function together.
Concentrate on learning how the markets function rather than on individual strategies. There is no cookie-cutter approach. What has worked for others may not work for you. In fact, you don’t want to be doing what everybody else is already doing. So keep that in mind when educating yourself on the market.
Here are some influencing factors that may determine your investment strategy.
Day Trading Strategy
Here’s an investment strategy for you. Some folks argue that day trading is a sucker’s game. It doesn’t have to be. You can take small, medium, or large bets.You can participate at whatever volume your comfort level will supply.
The more conservative you are, the less you will make; the more aggressive you become, the more likely you will incur losses. So you may have to experiment a trial-and-error period before you find your comfort zone.
Day trading is more about the history of a stock than its future. It is about playing gaps and hoping that the gap will close at some point during the day.
Here goes an example:
Let’s say a stock for company A opens the day at $10. You check the background of the company and the stock is doing well. It sold at $8 the day before and now it’s $10. You read a few company articles, and it looks stable – like the stock will go up, right?
Now check average daily history. If the 30-60-90 days stock average is $7…IT WILL DROP AT SOME POINT. We’re day trading, remember? We’re not holding on for the long-term investment. Who cares if in 3 days it could grow to $27 because it could also drop to $5, and then you are in the hole.
In day trading, we are looking for volatility, but volatility moving north from a downward position. The more volatile the stock, the higher the earnings. We are not looking for long earners. We are looking for volatile stocks that have fallen (buying low) that have a propensity to hit the daily average THAT DAY.
Recognize the trend. If a stock is trading at $6 and every 8th day, it hits $9 (if it’s that eighth day), BUY IT. Set an auto trade for when the stock hits $9. It might sell higher, but that doesn’t matter. Always remember that day trading is volatile, get out when you can. Day trading is not a place for greedy gluttons.
We have been using simple numbers of course, but you get the idea. Pick stocks that have fallen somewhere between 15%-30% of their daily average, watch their daily trend, sell within the average. This is only one strategy amongst many.
To get started, you can put some volatile stocks on a watch list and see if they react as planned.
Remember to pay close attention to detail. Do your own research, design your own strategy, and you may make hundreds or even thousands a day. All you need to get started is just $500.