5:02 pm CST, Monday, February 24, 2020
Once they have established a solid amount of savings, it’s not uncommon for many people to want to explore ways to potentially build them further. One such option is day trading.
According to Investopedia.com, day trading is the purchase and sale of a security within a single trading day, mostly commonly in the foreign exchange and stock markets. Day traders use high amounts of leverage short-term trading strategies in order to take advantage of small price movements in highly liquid stocks or currencies.
Day trading is often viewed as a get-rich-quick scheme, and as such, many financial experts discourage their clients from trading stocks because of the risks that accompany it. To put it bluntly, you could stand to lose a lot of money. But if you’ve done your research to properly educate yourself, it could prove to be a worthwhile endeavor.
“Trading can help your financial future by allowing you to eliminate debt and accelerate the growth of your investments,” said Tela Holcomb, Las Vegas-based stock market expert and trader, and creator of the Trade Your 9 to 5 program. “As with anything else, trading is risky if you jump into it without proper knowledge and preparation.”
Holcomb encourages her trading students to reduce risk is to start in a practice trading account and use separate accounts.
“A practice trading account is a virtual account that allows you to trade the stock market in a simulated environment with fake money,” she said. “This tool allows you to learn or develop a strategy and get a feel for the market without losing your hard-earned money.”
Using an account separate from your long-term investments can also help you reduce risk because just like having a separate account for your checking and savings, helping you separate the money for different purposes, and minimize the risk of using funds earmarked for long-term investing for trading, Holcomb said.
To actively trade, one should look into opening a self-directed brokerage account, she said. This account gives you a wider selection of investments to choose from and allows you to actively manage those investments. From there, she encourages clients to adopt the following:
Don’t use money you can’t afford to lose. “Don’t try to jump on ‘hot stocks’ that everyone may be talking about or one someone suggested you buy,” Holcomb said. “Do your own due diligence on a stock before deciding to buy it for trading purposes, as this will ensure you are confident in the trade and reduces your chances of making emotional decisions.”
Have a trading plan before you buy. A trading plan is your blueprint for the trade and outlines exactly what you’ll do if the trade is working or not working, Holcomb said. A few questions your trading plan should answer are:
• What makes this stock a good trade right now?
• At what price will you buy?
• At what price will you sell?
• Are you going to sell it when you’ve made $1 per share, $2 per share, or $10 per share?
• Is there a trend that will make the stock price move?
• Is there an upcoming event that will make the stock price move?
• Is the company coming out with a new product or service?
Learn to read stock charts. Stock charts can help give you some insight into what your stock is likely to do next.
“Basing your trade off the stock chart instead of how you feel about a certain headline will also help you keep your emotions at bay,” she said.
Keep your emotions in check. As Holcomb said above, by maintaining your composure when reading headlines, you can avoid making impulsive decisions and stay focused while sticking to your plan.
For more information about Holcomb’s program and services, visit www.telaholcomb.com.