Becoming a Successful Day Trader

Capital at Risk per Trade

To be successful, control the risk on each trade. Risk a maximum of one percent of your account on each trade. For example, if you have a $10,000 account, risk up to $100 on each trade.

Place a stop loss order to make sure you don't lose more the one percent of your account. Once you know your entry price and stop loss level, calculate your position size (how many shares, lots or contracts you take in the stock market, Forex Market or futures market).

One percent may not seem like a lot to risk, but, as I'll explain in the next section, our winning trades should always be bigger than our losing trades. While we only risk one percent, we strive to make 1.5 percent to three percent on our winners, risking $100 to make $150 to $300, for example. Only risking one percent also means that even if you hit a losing streak of five to 10 trades, you haven't lost much capital. A few winning trades and you have made that loss back. Risk more than one percent though, and a losing streak can decimate your account.

Reward:Risk

The reward:risk is how much you make on winning trades relative to how much you lose on losing trades. If you are always risking one percent of your capital, then your reward-to-risk should at a minimum be 1.5:1. That means you are making 1.5 percent (or more) on your winning trades, and losing one percent on your losing trades.

To accomplish this, place a profit target that is a greater distance from your entry point than your stop loss is. For example, if you buy a stock at $10 and place a stop loss at $9.95 (this risk would represent approximately one percent of your account capital, based on your position size) then your target would need to be placed near $10.08. If you lose, you lose $0.05 per share, but if you win, you make $0.08. That is a reward:risk of 0.08:0.05, or 1.6:1. Reward:risk is interlinked with the win-rate.

Winning Ratio:

Day traders should strive to keep their win-rate near 50 percent or above; that way, if the reward:risk on each trade is 1.5:1 or above, you will be a profitable trader.

Assume you are able to maintain a 1.5 reward-to-risk over 100 trades. You are adding 1.5 percent to your account on winners, and losing one percent of account capital on a loss.

If you win 50 percent of your trades, you are in good shape: 50 x 1.5 percent = 75 percent - (50 x 1 percent) = 25 percent. You increase your account capital by 25 percent over those 100 shares. If you win 40 percent of your trades, then you don't make any money: 40 x 1.5 percent - (60 x 1 percent) = 0 percent.

See how win-rate and reward:risk are linked? If you only win 40 percent to 50 percent of your trades, try to bump it up to 50 percent or more by making small changes to your strategy. Alternatively, you could try to reduce risk slightly or increase your reward slightly to improve your reward:risk. Slight adjustments could push this break-even or losing strategy toward being a profitable one.

Day Trading Loopholes

If you don't happen to have $25,000 to day trade, there are ways of getting around that requirement. They consist of loopholes and alternative trading strategies, most of which are admittedly less than ideal.

Make only three day trades in a five-day period. That's less than one day trade per day, which is less than the pattern day trader rule set by FINRA. However, this means you'll need to pick and choose among valid trade signals, so you won't receive the full benefit of a proven strategy.

Day trade a stock market outside the U.S. You'll have to do this with a broker that's also outside the U.S. Not all foreign stock markets have the same account minimums or day trading rules as the U.S.3 Research other markets and see if they offer the opportunities for day trading that fit your needs. Consult both tax and legal professionals to understand the ramifications before considering this approach.

Join up with a day trader firm. The structure of each firm varies, but typically you deposit an amount of capital (much less than $25,000) and they provide you with additional capital to trade, with your deposit safeguarding them from losses you may take. Otherwise, the firm simply leverages your capital.4

Do swing trading and enter trades that you hold for longer than one day. Swing traders capture trends that play out over days or weeks rather than attempt to time a one-day trend that might last for 20 minutes. While this is less a loophole and more of a change in strategy, it works for traders who want to stay actively involved but don't yet have enough equity to meet the $25,000 requirement for day trading

Open multiple day trading accounts with different brokers. This is a less-attractive choice, but, for example, if you open two accounts, you can make six day trades in a five-day period—three trades for each broker. This isn't an optimal solution because, if you already have limited capital, each account is likely to be quite small, and day trading with such small accounts isn't likely to produce much income. With small amounts of capital in each account, you are severely limited in the stocks you can trade, and some brokers may not even accept the small deposit.

Learning how to successfully Trade Forex can be complicated for beginners. Most people want to get rich overnight, no matter how unrealistic it may sound. The world of Forex trading can be a little overwhelming, especially if you are new to the game, and don't know the rules yet. You need to dip your toes in before you go any deeper. The good news is that we've got your back! We've compiled a list of 20 Forex tips for beginners to help you along your trading journey in 2020. If you already have experience with Forex trading, it's always good to remember the basics.

1. Choose Your Broker Wisely

Choosing the right broker is half the battle. Take your time to check reviews and recommendations. Make sure the broker you choose is trustworthy, and suits your individual trading personality. Remember, there are lots of fake brokers out there who will only stand in your way. Go for an authorized broker with a licence.

2. Create Your Own Strategy

No list of currency trading tips is complete if it doesn't mention strategies. One of the most common mistakes beginner traders make is not creating an action plan. Figure out what you want to get out of trading. Having a clear end goal in mind will help with your trading discipline.

3. Learn Step-by-Step

As with every new practical learning activity, trading requires you to start with the basics, and move slowly until you understand the playing field. Start by investing small sums of money, and keep in mind the old adage 'slow but steady wins the race'.

4. Take Control of Your Emotions

Don't let your emotions carry you away. It can be very difficult at times, especially after you've experienced a losing streak. But keeping a level head will help you stay rational, so you can make competent choices. Whenever you let your emotions get the better of you, you expose yourself to unnecessary risks. Exercising risk management within your trading will help you to minimize the risks.

5. Stress Less

This is one Forex tip that sounds really obvious – because it really is. But guess what? Trading under stress generally leads to irrational decisions, and in live trading, that will cost you money. Therefore, identify the source of your stress and try to eliminate it, or at least limit its influence on you. Take a deep breath and focus on something else. Every person has their own way of overcoming stress – some listen to classical music, while others exercise. Listen to your mental health and learn what works best for you.

6. Practice Makes Perfect

Of all the Forex tricks and tips for beginners, this is the most important. You are unlikely to succeed at anything on your first try. Only constant trading practice can yield consistently top results. But you probably don't want to lose money while learning the basics, right? Luckily for you, trading on a demo account costs nothing to set-up, and is free to use!

7. Psychology is Key

Every trader is a psychologist at heart. When you're planning your next move, you have to analyse market movements and review your own psychology. You need to ask yourself questions!

8. No Risk, No Success

Not even Forex trading tips and tricks can guarantee you success. When you decide to become a trader, you should have already accepted the possibility of failure. In case you didn't – here's a reality check. You won't make profitable trades 100% of the time. Don't let false advertisements get in your head, either. Instead, be realistic about your Forex trading methods and goals.

9. Patience is a Virtue

When it comes to trading, this old saying is not just a cliché. True success is never instantaneous. It's the result of consistent work and planning. Many beginner traders look for an easy, fast path to profit. Don't bother – it doesn't exist!