Day Trading Strategies: Increase
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Creating day trading strategies to reduce your risks is primarily done through the development of a written day trading plan. Within your day trading plan, identify the total amount of risk capital that you will use. Now identify the maximum percentage of your total risk capital that will be used to purchase stocks. The remainder – roughly 50% to 75% of your original risk capital, will be reserved as a cushion.
With that done, now create a day trading strategy to use with each stock that you purchase. Note: this is done before you buy any stocks. It should include :
| The method that you will use to identify the price you are willing to pay for each stock What is used to signal when you will sell it? The dollar amount or % of your portfolio that you want to use for each trade Your stop (loss) % drop sell point Your limit (profit) % gain sell point |
Now make a commitment to avidly follow these guidelines you set for yourself. Do not abandon or change any of them after you have purchased the stocks.
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Don't forget of one of the greatest day trading strategies: Avoid putting your money all into one stock.
Don’t invest too much into one stock or chase the "big event" whether it be a possible merger, buyout, etc. that may never even happen. It only substantially increase your risk. Remember, it’s important to trade at your comfort level. Too much risk creates fear and will scramble your thinking and cloud your judgment.
Day trading at your comfort level also involves being satisfied with your strategy. Usually, your original strategy doesn’t work as well as you would like, so keep refining and testing until your day trading becomes a well oiled machine. This is essential to reducing your risk, increasing your profits, and adding to your confidence level.
Just because you’re a day trader, don’t ever feel pressured to buy or sell a stock. Remember to follow your day trading strategies for every buy or sell signal. If you’re feeling pressured, take a step back and examine why you feel that way. If it’s greed or fear (the gruesome twosome in trading) that are demanding you to make an ill prepared buy or sell or go against your day trading strategy - ignore the urge!
A final trading tip: Never look at trades on the stock market as a way to feel good about yourself. Sources outside the stock market must fulfill that need. Stick to your plan!
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