Are you interested in trying day trading or scalping? The idea of putting multiple trades in a day seems enticing for most forex newbies. After all, more trades mean more chances of winning, right? Well, not necessarily.
In basketball, you don’t win by taking the most shots. Instead, you win by scoring the most points. The same applies to making short-term trades. What’s important is that you shift your mindset according to the strengths and weaknesses of this trading strategy. Here are four things you should consider before getting started.
1) Capital
Many beginners feel excited after opening a forex account. It’s as if they have found a way to turn their measly $25 into $10,000 without much effort. But creating an account is only the first step. If you want to earn big, then you shouldn’t get your hopes up if you only have $25 to work with.
One of the first concepts you should study is about leverage and margin. You can’t expect to put multiple trades daily and profit from every single one of them. Understanding leverage allows you to make profitable trades and get the most out of your initial investment. If you’re undercapitalized, try to save up more money first before engaging in day trading.
2) Transaction Costs
Should you wish to become a day trader, then you better start viewing it as a business. And like in any business, transaction costs are involved. For starters, there are commissions, spreads, and taxes.
Working with a broker means you wouldn’t get 100% of the profits. This doesn’t mean, however, that you should shy away from their services. Just be sure that you still have a net gain after deducting broker fees. It’s also vital that you clarify the spread/commission terms of the broker before proceeding to make trades.
3) Market Movers
As a day trader, you should be focused on market themes that influence short-term volatility. This is easier said than done, particularly if you have been a swing and position trader for quite a while. But no matter how difficult it is, try to disregard long-term trends for now so you can better focus on what factors affect your chosen time frame for trading.
4) Day Trading Strategies
After finding out what makes the market move, it’s time to pick what strategies work in your favor. This involves a lot of testing, so patience is key. You can consider trading breakouts, reversals, and momentum shifts within the day. You should also start studying the different indicators and identify which ones bring accurate signals.
Whether you’re a long-time trader or a complete newbie, remember that trading shorter time frames presents a whole new set of challenges. It’s easy to assume that day trading frees up your time, but the opposite may be true. You need to keep up with prices, place orders, and even trade larger positions – all of which can lead to trading mistakes and stress. But if you take the time to practice and apply the aforementioned tips, you should have a good start as a day trader or scalper.