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One of the most common methods of investing is called “day trading,” and it is especially common in South Africa and other countries. Learn the basics of day trading and where to start with this helpful guide
Explanation of Day Trading
Trading during a single trading day entails buying and selling the same financial instruments several times, with open positions being closed at the end of the day and new ones being opened at the beginning of the next trading day. Day traders are investors who make numerous purchases and sales throughout the course of a single trading day.
Intraday trading is not for the casual investor because it requires constant attention, discipline, and a unique frame of mind. The success of a day trader depends on their ability to make snap judgments and place numerous trades, each with a modest expectation of gain. Most investment strategies aim to profit from price changes over the long term, so this approach is often seen as the polar opposite.
Where can I find South Africa’s most liquid day trading markets?
Day traders typically operate in markets that close at predetermined times, but 24 hour markets are fair game as well (or almost 24 hours). Your interests, financial resources, and available time will determine which market you should choose for day trading. To name a few of the most active day trading markets:
- Shares
- Indices
- Cryptocurrencies
- Forex
Getting Started with Day Trading: What You Need to Know
Day trading can take a lot more time than the typical buy and hold strategy, so there are some important things to think about before you get started. When investing, it’s important to keep an eye on the big picture rather than the day-to-day fluctuations in the market. When day trading, however, you need to pay close attention to developments within a single trading session.
Among these are:
Day trading strategies can be selected.
Selecting a product to trade in is the first step toward realizing your day trading goals. Due to the absence of ownership requirements, derivatives like contracts for difference (CFDs) are frequently used in day trading. That means you can speculate on the ups and downs of market prices much more quickly by opening and closing positions electronically.
Make a trading strategy for the day
Day trading can be a lucrative way to make money, but only if you know what you want out of it and set reasonable goals for yourself beforehand. As there is often a steep learning curve associated with day trading, you may be sorely disappointed if you expect to make a lot of money right away.
You should also decide whether you will use fundamental or technical analysis to guide your decisions about when to enter and exit the market. To make day trades in accordance with fundamental analysis, you should focus on news events, company reports, and announcements of macroeconomic data.
If you go the route of technical analysis, on the other hand, you’ll probably pay attention to things like chart patterns, historical data, and technical indicators.
Master the art of day trading risk management.
Developing a plan for dealing with potential losses is an important part of getting ready to trade.
Traders can lessen the severity of their losses by preparing for the worst. Stops and limits are two of the most important tools in a trader’s arsenal for managing risk.
Many traders will tell you that the key to success in day trading, as with any other strategy, is to cut losing trades quickly while letting profitable trades run. A trader doesn’t need to always be right, but they do need to be quick to admit it when they’re wrong and take corrective measures, protecting their capital by making more on successful trades than they do on unsuccessful ones.
Day Traders need to master risk management.
Consensus on whether a trader should prioritize a high win/loss ratio or a favorable risk-to-reward ratio remains elusive. Many successful day traders have win rates below 40%, but they aim for a risk-to-reward ratio of 1:2 or higher. This means they anticipate making at least twice as much money as they risked. That’s something you should think about for yourself, but one thing is certain: while it’s okay to make a mistake and absorb a small loss, continuing to be wrong and experiencing a large loss is probably the surest way to end a career as a day trader.
Keeping abreast of market events and breaking news that could affect the prices of the markets you are focusing on is essential if you are a day trader, as you will likely open and close multiple trades within the same day. Use the information we provide, including market trends and breaking stories, to accomplish this.
Day Traders need to close position before end of the day.
Each open trade should be closed before the end of the trading day. Keeping a trading diary of all the positions you open and close throughout the day, including a record of both profitable and unprofitable trades, is one of the most important practices you can adopt at this time.