How to Start a Day Trading Business? -7 Tips to Day Trading Profit

Before everything else, precisely what is daytrading? As per Wikipedia’s definition, Daytrading represents the practice of buying and selling financial instruments (for example stocks, futures, options, etc.) as a way to yield an income in the same trading day. People that participate in day trading are called active traders or day traders.

Day trading, similar to other business professions, requires profound education, quality preparation, and a lot of practice. Thousands of novices get into the day trading business every day in hope of making quick cash. But just a few of those who get well educated, employ a solid trading plan and discipline will survive and thrive in the business. Many of them make thousands of dollars every day trading just for a couple of hours, and spend the rest of their days freely with their loved ones, doing what they love to do.

So how to become a successful day trader and make real money in the stock market? Let’s examine it:

Step 1. We need to give ourselves a thorough education on the financial market. We have to know very well what financial instruments are available in the market, what instruments fit our day traders best. Next we ought to familiarize ourselves with the various day trading strategies and try to pick one that fits us the best. Search engines including Google and Yahoo are great places to search for day trading tutorials and strategies. We'll require to carry out our thorough analysis and use our own judgment to determine the right one that fits us most. We should also equip ourselves with the trading resources such as market research tools, realtime trading software, and find and sign up with a trustful discount broker.

Step 2. Once we have determined our trading strategy, the next task is to write up a trading plan. Yes, we should put our trading plan in paper. In this particular trading plan, we shall put together our mission statement-what we wish to achieve in day trading? What exactly are our short term and long term goals? Will we want to get additional money besides our day job, or do we wish to turn into financially independent by doing day trading? We will also need to prepare a detailed plan on our daily trading activities which include pre-market research, our entry and exit strategy, and our after-market research.

Step 3. Set up an account for paper trading. Once we have created our trading plan, we're set out to test the water by paper trading or doing trading simulation. This is very important as we don't wish to risk our real money before we're confident with the trading game. There are lots of trading simulation software available for free in the market and we can also check out with our broker to see if they offer a real time trading simulation software. When doing simulation, attempt to visualize ourselves as trading with our real money and act according to our trading plans.

Step 4. Set a daily limit, both for profit and for loss. After we have built up confidence in day trading, we try to trade once or twice a week with real money. It is very important established a daily limit for both profit and loss. As an example, we may set a daily profit goal at $200, and a loss limit of $100. Once we have reached either limit, we need to stop trading. Turn off your computer, go out and take a walk or have a cup of tea. Do not over-trade.

Step 5. Have a good money management system in place. Before we enter each trade, we ought to evaluate our worst case scenario. How much money we can afford to lose in each trade we enter if we happen to lose in every single trade we made for the day? Understanding our maximum affordable loss for each trade is critical as we will purposely limit our size of entry and set up our stop loss even before our trade. This will prevent us from losing big and keep us in the game.

Step 6. Resolve our emotion issues by writing trade logs. For day traders, keeping our emotions under control is a big challenge and need much disciple and exercise. Every day, we may be distracted by various emotions such as fear, pride, ego, etc. These emotions will prevent us from following our trading plans and eventually degrade our confidence. An effective way to fix this issue would be to write trade logs consistently on a daily basis. When writing logs, we will analyze each trading action and document the actual reasoning or emotion behind trade. When we see ourselves fall in the trap of emotions, we will remind ourselves not to make the same mistake the next time. By exercising this plenty of time, we will train our mind to follow the logic and keep our emotions in check.

Step 7. Reward ourselves when we abide by our rules. Whenever we follow our strategy or trading plan to the letter, regardless of a winning or a losing trade, we need to give ourselves a big pat on the back, because we have conquered our emotions and made a big leap toward day trading success and financial freedom. When we have achieved our short term target, we should not forget to reward ourselves for the hard work and achievement. Be it a trip to Las Vegas or a cool iPad, put this in our trading plan as it will motivate us to achieve our goal. In the end, we deserve it anyway.