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How to Start Trading

by Stock Navigators, October 2020

9 min

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Deciding Moment

So, you’ve decided that you wanted to trade! Trading can seem daunting at first because of your potential losses, but it can also be very rewarding in many different aspects! There are many benefits to day trading such as, A LOT of personal time for other hobbies, financial freedom, and being your own boss.

Getting Started

First off, we need to determine what you will be trading. Many beginners assume that being a day trader trades stocks, but you can also trade futures, forex, options; the list goes on. If you’re day trading for the first time, we recommend you picking only one of these four options and mastering it before you decide to trade other types of instruments. Next, you have to decide how much you are willing to trade. While you do need $25,000 to bypass the Pattern Day Trader rule, you can definitely trade below this value, but you will be limited to three round-trip trades within a 5-day period. Round trip trades are defined as buying or selling of a security and then selling it or buying it back depending on what you do. Keep in mind that most brokers have a minimum requirement of money in your brokerage account ranging from $500 – $5000.

Brokers

After deciding what you will be trading and how much you are willing to invest into it, you will need to find a broker. Brokers can be a little tricky with all the fees and commission they tack on, but just remember to do your due diligence. Things to consider when you are looking for a broker:

  1. We cannot emphasize how expensive it can get if you do not find a good broker. Commissions, margin rates, and other expenses can form a huge hole in a day trader’s profits. These commission costs can go from hundreds to thousands of dollars for traders that trade at a high volume.
  2. Must have good research tools at your disposal.
  3. Day trading software and charting tools
  4. The broker must have fast execution speed with real-time execution.
  5. Make sure that they are regulated by an agency with important metrics that they are required to abide by.
  6. Lastly, good customer service.

Trading Hours

Many day traders trade within the first hour the stock market is open, which is 9:30 – 10:30 AM EST or within the last hour before it closes 3:00 – 4:00 PM EST.  These are the best times to make the most money.

Stocks

Deciding which stocks to trade can also be overwhelming with so many tickers to choose from. There are many ways to find which stocks you want to trade, whether it be your favorite company or you’ve done your research on certain companies. After you have picked your stocks, we recommend beginners to choose their top 2 stocks and trade these all the time. Once you’re comfortable with one to two stocks, then start branching out.

How Much to Invest

It is entirely up to you on how much money you want to risk, but it is recommended that you risk no more than 1-2% of your account per trade and assess the amount well ahead of time. Amateurs should stay away from trading on margins because most brokers charge high interest rates for borrowing their money.

Practice Makes Perfect

If you are worried about losing all your money, you can also practice with a simulator. If you practice simulators, we recommend that you treat it as realistically as possible and that you are trading during the time that you will be most likely trading. Emotions can change your behavior, especially when you think you have “unlimited” money. So again, we recommend you to treat it as if you have that same amount of capital and trading at the optimal trading hours.

Lastly

Enjoy and submerge yourself into trading! It can be nerve wrecking at times, but once you get the hang of it, it’ll be worthwhile. Don’t let your emotions get to the best of you and definitely do not over compensate for your losses immediately.  Recovering from losses can take time and be frustrating, but you have to learn from your mistakes over time and find the right strategy that is tailored to you.

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