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How to Become Amazing at Day Trading

Tips will help you make sure that you are starting off on the right foot

5 Min Read
Last Updated March 27th 2021

Day trading is one of the ways to keep track of your investment in the forex market mainly because you buy and sell the currencies on the same day. It is a great way to mitigate unmanageable risks and negative price gaps. However, there is much to know before you start day trading. As with any other trading market, forex trading is also rife with risks and possibilities. The high liquidity and volatility associated with forex trading mean you need to prepare yourself with as much information as possible before jumping on the bandwagon.

If you are looking forward to entering day trading, here are 9 tips to help you start on the right foot. These tips would not only make your entry easier but also help you to plan and strategize your moves to manage the risk. Read on to know more.

Come Up With a Trading Plan

The importance of planning cannot be emphasized enough. You should have a broad idea of how you are going to make a profit well before you invest the first cent or dollar. A trading plan should lay out the steps that you will take to achieve the potential profits. It need not be anything fancy.

A simple, written document mentioning what and when you’ll trade, how and when you’ll enter the trade, and how and when you’ll exit winning and losing trades would suffice. You can include certain details such as position size too. Any other rules can be added or finetuned as required.

Get Some Practice Before You Trade

Once you put the trading plan in place, don’t just go ahead and start trading straight away. The best step would be to do some trades using your demo account to know how your plan translates into work. If some things don’t go according to plan, you can revise your plan or your strategies without losing any money.

The demo account is the best way to learn the trade without the risk associated with actual trading. Continue practicing until you make a profit for several months in a row. Once you do that, you can go ahead and step into the real forex trading market.

Follow a Routine to Prevent Mistakes

Following a routine is crucial for success in day trading. Once your forex trading account is up and running, stick to the routine, no matter what. Get up and start the trade at the same time every day, check for scheduled data releases, and also quit trading at the same time every day. Have a checklist ready to keep you on schedule with your trading plans.

Check Out: Forex Trading Routines: How To Find The Right One For You

Avoid Hold Positions During High Impact News Announcements

Forex trading performance is highly volatile because it depends a lot on variables. Although you can’t plan for every eventuality you can take small, definite steps. Avoiding hold positions during high-impact news releases is a good strategy as they are highly unpredictable.

You will not be able to predict how far they might push the price, and in what direction. So, watch out for events such as company earnings announcements and scheduled economic data releases and avoid holding day trading positions when they occur. You should wait until after the news release to use day trading strategies to capitalize on the volatility that follows.

Read More: Top 10 Forex News Sites

Undertake Periodical Reviews

You should review things regularly to get the overall picture. Never shy away from weekly and monthly reviews as they are critical for long-term success. Without reviews, you cannot see the big picture and realise what you do well and where you are faring poorly.

Taking a daily screenshot of your chart and reviewing it at the end of the week is good practice. Note the deviations from your trading plans and the areas of improvement. Draft a plan for improvement and review it at the end of the month.

Establish a Mental Checklist for Each Trade

It is easy to get distracted from your trading plan while watching a price chart. Hence it is important to establish a mental checklist to run through before each trade. This will help you make sure that each trade meets every specification laid out in your forex trading plan. This just takes a few seconds but would save you from making a bad trade.

Plan for Your Weaknesses

No matter how meticulously you plan and act, it is a given that at one time or other you will succumb to some of your weaknesses. However, smart traders are those who take note of their weaknesses and plan for corrective action to make good the losses made when they succumb to them.

Often, simple steps like closing the trade immediately and staying away for a short period – a 10 to 15 min break – can work wonders. If things don’t work that way, you could enlist a friend or assistant to take on when the particular issue surfaces.

Use the Stop-Loss Order

If you are in day trading, you must use a stop-loss order to get out of a trade if the price of an asset does not move the way you expected it to. It is the point where you must admit you were wrong. No trader can accurately predict performance and hence losing trades are normal. However, that does not mean you should trade for large losses. So, make use of a stop-loss order and cut the losses.

Watch the Risk

In day trading the ideal scenario would be where your risk is less than 1% of capital per trade. So, your stop loss should be placed in such a way that the damages caused by a losing trade should be limited to less than one percent of your forex account balance.

Trade risk is the difference between trade entry price and stop-loss price. When you multiply trade risk by the position size, it should be less than or equal to the account risk – i.e., one percent of the account.

Additional Points to Remember

Apart from the above, you should remember the following

  • Stop losses and profit objectives are based on today's market conditions.
  • The potential reward should always outweigh the risk.
  • Focus on one market at a time.

These tips will help you to become amazing at day trading. But remember that they don’t work if you don’t practice a strategy, build, and test your trading plan. Ultimately, your success or failure depends on the extent of work you put into it.

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