Thanks to a popular investment app that allows you to buy and sell stocks for free, many people out there think the prerequisite to day trading is a bank account with $25k. I told an investor I was a buy and hold type guy, and building and his response were: Oh yeah, you need $25k. There’s a whole lot more today trading than the ability to do so based on the amount of money you have.
In fact, without knowing much about trading stocks, you can get burned quite easily. Even the best of the traders out there lose money from time to time. You want to limit your losses as best you can, and you want to find those winners. Many people like to try and get in on IPOs, but look at what happened to LYFT.
LYFT took off on its first day of trading, and it has subsequently been on a downward trend. The company is yet to be profitable, just like Uber. Remember when getting in on IPOs that the big fish have already had their turn. They will buy ahead of you.
If you buy after them, you give them the ability to sell for a profit, leaving you holding the bag. If a company isn’t doing so well financially at the moment, well, the IPO is only a day trading opportunity for the big dogs who got in first.
Granted, I purchased a share of LYFT to buy and hold for my portfolio. I only purchased one share, and again, I’m a buy and hold investor. Yet I plan to day trade stocks in the future if the opportunity arises. You do indeed need a significant balance to participate. But it’s more about you being financially stable and ready to take on that type of a trading opportunity.
You need to have all the other financial aspects of your life in order first. That doesn’t mean, however, that the dollars in your day trading account are play money. You are always investing with real money, and knowing different day trading strategies can really help you in the long run.
Novice day traders tend to flock towards penny stocks. To be sure, there are experienced day traders that do the same thing. Yet you really want to do your research and get to know a company. A company’s stock often sells for pennies for a reason.
You also want to watch the hype. Many companies out there are hyped by day traders that are networked together, and the hype can make certain stocks appear to be great buying opportunities. They might skyrocket one day, but buying the hype is never a good idea.
You might, and I say might end up profiting off of a move like that, but most of the time, you are going to be late to the game and holding the bag. It’s better to learn the easy way than it is to learn the hard way.
Start out small. Try out just one move to get yourself going. You can place more trades as you get more experience under your belt. You will want to know which broker you want to use, and you want to be sure you have the best software and trading tools available.
Consider the fees that you are paying and what securities you have access to as well. Day trading can be expensive if you are placing trades, and those fees can eat into your profits. Imagine paying all of those fees and racking up the losses. Now you’re starting to see why you want to be fully prepared when you start day trading stocks.
You will get better at timing trades, so don’t bite off more than you can chew from the beginning. You will also want to be sure you network with some experienced day traders. Just don’t buy the hype. Also, focus on using limit orders so that you minimize losses.
Day trading is fun, and it can be very lucrative. There are people who do it for a living. Yet you can lose your shirt if you don’t know what you’re doing. Never assume you know all there is to know and don’t let your eyes get too big when you see an opportunity. Make smart moves, and make that money.