How will I Know When I’m Ready to Begin Day Trading? Here’s the Guide!

A serious question that few investors and beginners ask themselves is, “am I ready to day trade?” Most will hop right in, without a clue of what they are doing, what they are spending and how much is at risk. Day trading is a different ball game from long term investing.

No, it is not just a game of penny stocks and corrupt companies. It’s a business being able to make decisions, without emotion and cash in on the opportunities as they strike.

Have less than $5,000? I wouldn’t even start without that much!

And an even better question is, is it $5,000 that you can afford to lose? Because one of these days, luck streaks and talent will run dry, when luck works against you and someone with more talent is on the other end.

Do you Understand Fundamental Analysis and Technical Analysis?

Begin Day TradingIf you do not understand fundamental analysis you are really not ready to begin evaluating equities in the first place. You need to be able to recognize sets of numbers for what they are – not necessarily calculate them off-hand – and put them in the context of history, the sector, expectations, etc. The P/E ratio is a commonly used metric. It’s not enough to understand that it means, price over earnings. You need to know what a comfortable P/E ratio is for that stock. You need to know how it holds up historically. You need to know what the sector is trading at. You should know what analysts are projecting so you can beat them to it or prove them wrong.

Technical analysis is still largely held in disdain by the fundamental group. Nevertheless it is a powerful set of tools utilized by many of the best day traders in the world. Knowledge of exotic sounding and even more confusing looking chart patterns are a minimum. Estimating where they will move and when they will move is where the money will be made.

Under intense pressure, emotion is put out the door, as day traders notice a pattern and take advantage of it before it arrives or before it disappears. Some might call it luck and sometimes it is, but a proper foundation is at the core.

Are you Ready to Kill your Emotional Investing?

Day trading involves substantial risk and is not suited for someone who cares about a particular company or feels strongly about what they are doing or the products or services they offer. Day trading is all about focusing on either the fundamentals, the technicals or both.

You could theoretically lose thousands of dollars in just a few moments if a particular stock of yours drops to a level below what you paid for it. Do you cash out and take the loss, sensing further drops in the price? Do you keep hanging on to it, waiting for it to rebound to break even or create profit? Either and both can happen in a matter of minutes.

Do you Have an Entry and Exit Strategy?

You need to learn really quick what you are willing to buy in at and what you are willing to sell at. Unlike long term investing, in which investors buy a stock with not as much focus on the daily prices, day trading focuses on minute moves in the stock throughout the day.

If a scenario like the one above occurs where a stock jumps or drops dramatically you need to know where your levels are for cashing in or limiting a loss. Both scenarios will occur. Right down and commit to memory where your money needs to be and implement the strategy to use it responsibly.

Having a Dedicated Day Trading Office

Make no mistake you have to have the tools and the talent. You could theoretically day trade on your table or your laptop in the living room while doing household chores and taking care of the kids. But if you miss just one thing throughout the day you could be screwed! This is a 9:30 to 4:00 job every weekday excluding American holidays. Before and after that time is preparation and studying. Read up on day trading.

Here’s some  great technology to set up your day trading office. Keep it simple but make sure you have a dedicated chair for hours of comfort and a great monitor screen, preferably two. You will need a room to yourself that you can focus.

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