Day Trading Explained in Simple Terms:
Before we go further, you may get all the below details in my published book, Basics of Stock Market for Beginners.
Day trading is a great way to make money, but it’s only for some.
In this post, we’ll explain what day trading is and whether or not it’s right for you.
When it comes to making money, there are a lot of different options out there. Day trading is one of those options.
What Is Day Trading?
Simply put, day trading is buying and selling stocks/futures/options within the same day.
So, you’re a day trader if you buy a stock at 9:15 am and sell it at 3:30 pm.
Now, there are a few different things that make day trading different from other types of trading.
For one, day trading is entirely online trading these days. That means you don’t have to trade on a physical stock exchange.
Another thing that makes day trading unique is that you’re not investing in a company for the long term.
Instead, you’re simply looking to make a quick profit by buying and selling stocks within the same day.
Warren Buffett mentions, 95% of Day traders turn Investors on the 2nd Day!
There are also a lot of potential rewards. If you can successfully buy and sell stocks within the same day, you could make a lot of money.
Overall, day trading is a great way to make money. However, it’s only for some. If you’re willing to take on the risks, then day trading could be an excellent option.
Whether or not day trading is suitable for you is something only you can decide. If you’re interested in trying it, learn technical analysis like a pro first and practice with a demo account before investing any real money.
Good Read: Can Day Trading Make You Rich
Traits of a Good Day Trader:
Many things contribute to a good day trader, but some traits are essential.
1) First and Foremost,
- A good day trader must be disciplined.
- This means having the ability to stick to a trading plan and not letting emotions influence decision-making.
- Fear and greed are the two emotions that can lead to bad decisions, so a good day trader must be able to control them.
2) Another Essential Trait of a Good Day Trader
- Is the ability to take losses.
- A good day trader knows when to cut their losses and move on to the next trade.
- Everyone makes bad trades sometimes, but the key is to minimize losses and move on.
3) Third Important Traits Is:
- A good day trader must be patient.
- Day trading can be stressful and fast-paced, but a good day trader knows when to be patient and wait for the right opportunity.
While discipline, taking losses, and being patient are all essential traits of a good day trader, there are others.
4) Other Important Traits Include:
- Being able to control emotions.
- Being patient.
- Having a good risk management strategy.
Why Mindset of a Day Trader Plays an Important Role?
- It’s like a Geyser. If the temperature is set to 25 degrees, Geyser will regulate it and the thermostat in the geyser will achieve it. Though the temperature gets higher thermostat kicks in and cools it off.
- Just like this, your brain also has a thermostat. When you say that I am worth nothing, your brain’s thermostat will never let you a single penny. Though you get some money from inheritance or lottery you will lose it all because your thermostat is set for no money.
- Mindset is like a stealth aircraft that does the work without you knowing about it. If your conscious mind had to control your digestion for breathing most of us would be Dead By now.
- Every action that our mind prioritizes will be set with an exact amount of energy. If energy flows that task will be done.
- As I already mentioned knowledge is screen and action is King, action requires your mind to set aside energy.
- So so every task you do requires you to prioritize if it is important or not. If it is not important your mind will never be able to process that energy to be allocated.
- Also, it is mentioned that habit can be formed by doing a certain task for 21 days. That’s true only if your mindsets apart the energy to do the task. Else it will take 264 days to create a Habit for yourself.
- We have all read how lottery winners will become millionaires and within years table Lose It all and get back to rags.
- Also, we have heard that Donald Trump lost billions but made back all the billions he lost. Because his thermostat is set to earn billions.
The Mindset of a Good Day Trader:
- A good day trader always has their finger on the pulse of the market.
- Meaning they know the rises and falls of the market as they’ll have a grasp on technical analysis.
- They know when to buy and when to sell, and they have a keen sense of what is happening in the world of stocks and investments.
- But there is more to being a successful day trader than just knowing the ins and outs of the market.
There is a certain mindset that all successful day traders share.
Here Are Four Traits of the Successful Day Trader Mindset:
- A good day trader is flexible.
- They are able to adapt to the ever-changing landscape of the stock market.
- They are also able to take risks when they need to in order to make a profit.
- A good day trader is patient.
- They know that good things come to those who wait.
- They are also willing to hold onto a stock for a long period of time in order to make a profit.
- A good day trader is persistent.
- They are always looking for new opportunities to make a profit.
- They are also willing to try new strategies when the old ones are no longer working.
- A good day trader is disciplined.
- They stick to their plan, and they don’t let emotions get in the way of their trading.
- They are also able to control their impulses and make rational decisions.
Risks Associated with Day Trading:
- Of course, there are risks associated with day trading.
- Since you’re not investing in a company long-term, you could lose money if the stock/option/futures price decreases.
- Since the leverage is higher for day trading, with leverage, your profits may be higher, but brokerage will eat up the profits very fast. For Ex.) On my first day when I started day trading, my profits were Rs.2890. But at the end of day my profit was -Rs.1890. Because with leverage, I’d traded Infy which I sold in Rs.1 profits.
- If you are trading options, you may have the risk of losing everything if trading on expiry day!
- If you don’t know a good risk management strategy with good stop loss, you’ll lose more than you’ll gain.
Good Strategy for Day Trading Explained:
Some trends are super profitable.
A simple strategy of EMA crossover of 10 and 13 EMA can make you super profitable.
- When 10 Day EMA crosses above 13 Day EMA, BUY.
- When 10 Day EMA crosses below 13 Day EMA, SELL.
If you had bought Nifty Futures at 15579 when it gave a crossover you could have sold it at 17756 levels.
That’s 2000 points gain. Equaling 100000 in profit.
But this is not so profitable if you want exemplerous returns daily or monthly.
Mr.Warren Buffett says “If you want to be rich, invest in simple index funds.”
A simple index fund has beaten the fund managers in their own game of investing in a tenure of 8 years or more of investment.
So start NOW. Because Knowledge is Queen and Action is King.
Also if you need definitive strategy to trade, my book on Amazon may help.
Happy Trading and Happy Money Making!