In the current global economic environment, many people are looking for new ways to make a living. We are tired of the daily and grind and seeking ways to work at home. Therefore, many people turn to day trading as a new business.
Unfortunately, the vast majority of people who enter the world of day trading are unsuccessful. Trading is an extremely difficult profession, and most people are not psychologically prepared for the pitfalls. They read one or two trading books and feel that they are armed and ready for the challenge. However, most of these books contain conventional wisdom, and a regurgitation of old ideas that rarely work.
The fact is, most people are not prepared to accept that most trades will be losers or breakeven trades. Most people want to be right the majority of the time, but trading is not about being right, it is about making money.
With all this in mind, here are a few basic ideas on how to start your day trading business.
1. First you must determine how much capital you can trade with. This must be pure risk capital, or, money you can absolutely afford to lose. You can start day trading futures indexes with as little as $5,000, but you need $25,000 to day trade stocks.
2. Be sure you have ANOTHER means of income to pay your basic bills. It is extremely difficult for a new trader to live of income from day trading. If you’ve recently lost your job, find a part time job elsewhere that still allows you the time to day trade, if day trading is the direction you want to try.
3. Develop a specific strategy for day trading whatever market you intend to trade. For instance, if you plan on day trading E-Mini S&P 500 futures, you must first determine whether you want to be an intraday scalper or whether you want to profit from large directional moves. Remember, if you intend to be a scalper, you must be glued to the computer screen for hours each day. That can be tough for most people.
4. Determine what your basic profit goal will be, and DO NOT make this a monetary figure! Gary Smith, who wrote “How I Trade For a Living” simply had the goal of being profitable every month. It didn’t matter whether he made $200 or $2,000 in a month, he simply wanted to make a profit. Adjust your goal for how you will trade. If you decide you want to be a scalper, you probably want to have a goal of being profitable every week, if not every day.
5. Determine which market, or markets you intend to day trade, and then learn all you can about what makes those markets work, and what influences their prices. In the stock market, it is very difficult to learn all there is about how the market works, but if you learn the basics, you will gain a better understanding.
6. Begin by paper trading first, then when you are ready, trade with very little leverage to start. You want to get a feel for whether your strategy will work or not. Confidence is a key to success. Also, even if your strategy is working while you paper trade, things change when real money is on the line! You must maintain the discipline to follow your strategy, if you are confident it will work in the long run!
7. Keep detailed records of your trades! This will help you identify your skills and faults as a trader, and will benefit you in the long run!
These are just some basic thoughts on starting a day trading business. There is an incredible amount to learn about day trading, and the fact is, most people fail. Trading is just like any other skill profession…it requires education and experience to become successful, otherwise, we would all be doing it!
Copyright (c) 2009 Scott Cole
