What exactly defines a successful day trader? Despite a large number of traders having access to online trading platforms, not everyone will succeed in making money. Therefore, a successful day trader is one that can make more profit than losses, in simple terms.
However, we don't recommend anyone become a day trader. Day trading is NOT investing – it's effectively employment. You need to separate the two when you think about how you manage your money.
You should also only commit capital to day trading that you can lose – just like you would when starting a business. With that being said, let's talk about what makes a successful day trader.
What is a Day Trader?
A day trader will buy and sell securities throughout the period of a day. By definition, any open positions they hold will not be brought forward to the next day. Any buy or sell positions, therefore, will be settled prior to the closing of the market on any given trading day.
When it comes to day trading, any investor looking to enter into this form of investing will need to become fluent in the practice of trading within these parameters. Therefore, when it comes to how to day trade, an investor who is not used to making quick decisions or having the time to afford to day trading, will be at a disadvantage to others that do.
Becoming a Day Trader
There will be a few things to consider before moving into day trading. An investor must be in a position where they can be honest with how much they can allow to day trading. Without the time to commit for long periods of time and pay close attention to the markets, it is unlikely that success will follow.
Aside from simply having the time to commit, in order to become a day trader, investors will be required to:
- Devise a structured trading plan – Without an adequate trading plan, there is no direction. A plan will provide a set of principles to adhere to in order to make a considerable profit and protect against rash moves.
- Have ample capital – Profits are far from guaranteed. Swallowing losses are a part of the role, so having enough capital to make background and keep themselves in the game.
- Understand how the markets work – Without knowledge of the markets and how they function, a trader is effectively operating without any direction. Profits are unlikely to just fall into an investor’s lap without knowing how to operate.
- Know how and what to trade – There is a notable difference in how stocks, options, EFT’s, mutual funds, and more trade. This compounds the requirement for a trading plan and strategy. Without any idea of not just how these operate, but how they can impact trading capital, is a bad idea.
- Learn how to manage capital and plan for any unforeseen events – This, once again, requires astute knowledge of what to expect. The psychological aspect of trading is very important and day trading is no different.
While the list above is far from exhaustive, it does outline many of the key principles which day trading requires from an investor. Without planning and understanding, a trader will effectively leave themselves open to a myriad of problems which could have a drastic effect on their ability to trade.
Taking these fundamental but necessary steps are a sure-fire way to preparing yourself for life as a day trader.