Day trading isn’t easy.
And that’s a given. It requires a
lot of energy, as well as a tremendous amount of discipline. However, if you can do it right, you can
achieve huge rewards.
And the first step to day trading properly is to know what
stocks (or other assets like currencies) to buy. After you determine which you want to buy,
you got to know the precise moment when to do it.
In this article, we’ll talk about the things you need to
focus on when buying an asset, as well as the conditions that you should look
into to know when exactly to buy the asset.
What to look for
As a day trader, your goal is to make money by taking advantage
of price fluctuations in individual assets, like stocks, futures, and options,
along with leverage.
[RELATED: Picking Stocks: 4 Things to Consider]
[SEE ALSO: Futures and Options a Quick Comparison]
When you’re not sure which to shift your focus on, you can
take into consideration the following:
Liquidity
Liquidity is the ease in which you can convert an asset into
cash. High liquidity makes it easy for
you to enter and exit a trade at a good price.
And when we say ‘good price,’ we’re referring to tight spreads, which is
the difference between the bid and ask price, and low slippage, which is the difference
between the anticipated price of a trade and its actual price.
Volatility
Volatility is a day trader’s friend as long as he or she is
careful with his trading steps. This simply
refers to the measure of expected daily price range, which refers to the range
in which you operate. Remember that
higher volatility means either greater loss or greater profit.
Trading Volume
This one talks about the number of times a stock or another asset
is bought and sold in a specific timespan.
The time period measured is typically within a day of trading, which we
also call the average daily trading volume.
When to Enter the Trade
After you’ve determined which stocks or assets you want to
buy, you need to know when to do the deed.
In other words, you need to identify entry points, which is practically
the exact moment you’re going to invest.
You can use some tools to accomplish this job, such as:
News and Updates
It’s no secret that news affects any asset’s movements. News can either make or break the trend in an
asset’s movement. So it’s very much
advisable to be in the loop on the time.
Stay updated and be on the lookout for potentially market-moving news.
[READ FURTHER: An Introduction to Trading the News]
ECN/Level 2 Quotes
ECNs are computer-based systems that show the best available
bid and ask quotes from many market participants. This automatically matches and executes
orders.
Meanwhile, Level 2 is a subscription-based service that
provides real-time access to the Nasdaq order book composed of price quotes
coming from market makers that are registered in each Nasdaq-listed and
over-the-counter Bulletin Board securities.
Working in combination, they can give the day trader a
better feel of the orders that are executed in real time.
Final Word
Being a day trader can be rewarding venture if you can do it
well and properly. As a final reminder,
keep in mind that it’s better to set a very
specific group of conditions as your signal to go into a trade. A more specific condition works much better
at giving signal and is extremely more testable than a vague one.
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