How to Daytrade Stocks
Daytrading stocks is a risky way of making money, but contrary to popular belief, it's not the same as gambling. It requires skill and research, but anybody can do it with enough practice and understanding of how the market works. Many people who attempt to daytrade stocks end up broke, while others make their entire income from it. It is a legit way to make money online in the virtual world, but beginners should take caution and take things slowly. In this article, I will explain the beginner basics of how to daytrade stocks.
Research and Practice First you must learn how the stock market works. I suggest you spend an hour or two each day for a few weeks to learn about the stock market. You basically need to learn how stocks work, how to buy and sell stocks. All of this can be done online through a virtual broker. Examples of online brokers would be Scottrade and Etrade. You do all the trading yourself on your computer. On a typical day, I will research what is happening that day by reading stock reports online on websites such as Yahoo Finance. After trying to get an idea for how stocks are doing that day, I will usually try to find a stock that looks like it may rise in value sometime during the day. The rise in value doesn't have to be significant if you are trading with enough money. I typically look at stocks that are not very volatile (meaning they move up and down a lot), but volatile just a little bit, enough to make a profit. If a stock barely moves during the day, it is harder to make money. However, if a stock moves a lot up and down, it also leaves room for you to lose money as well. I usually choose stocks that are consistent and not newer companies. Newer companies are riskier because they are more volatile than established companies. They do however offer bigger rewards, so it all depends on your preference and how comfortable you are with the risk of losing money. Never trade with money that you can't afford to lose, just in case. Even the best traders have had bad days, and one bad day can wipe out 6 months worth of earnings in some situations.
Buy Stock Once you research things and decide on a stock, it's time to buy it. As mentioned before, you can purchase stocks through online brokers. Basically, you just enter in the Stock Symbol (also known as the Ticker Symbol) you would like to purchase, then you enter how many shares you would like to purchase. You can then either purchase the stock at market value (the price it's currently at, which can change every minute), or purchase it at a specified price. I recommend a specified price. You should never buy stock at the market value, because this can change at any time. To purchase it at a specified price, you can use what's called a Stop Limit Order. So if a stock is at $5.20 a share, and I want to purchase it at that price, I will choose "Stop Limit" and enter $5.20, and the number of shares I want to buy at that price. You can also specify a price it's not currently at. For example, if I want to purchase the stock once it hits $5.10, and I suspect it may hit that price soon, then I will put a Stop Limit Order in for $5.10, and it will not buy the shares until the stock hits that price.
Sell Stock After you purchase the stock, it's time to sell the stock. I usually try to get rid of my shares the same day I buy them, but sometimes I'm forced to wait until the next day, or next week, because things don't always go as you planned. My recommendation is to not be greedy. There's two types of people that daytrade, grinders and shakers. Grinders are people that grind along, and set small goals each day. Their goal is to make a certain amount each day, and it's usually a small amount, such as $50 to $200 when playing with $2,000 to $20,000. Shakers are people that go for the jackpot. They try to make as much as they can in a single day, instead of stopping once they reach a minor goal. I'm a grinder, and my goal is typically $80 to $100 a day, with $10,000 to trade with. I don't go for the jackpot, I just try to reach my daily goal, and once I reach it, I cut myself off and sell immediately. I then move on to researching another stock, or make plans to repurchase the same one the next day. So you need to determine what type of person you are, and formulate a game plan. Once you're ready to sell the stock, you do it the same way that you bought it. You enter the Stock Symbol, and enter in the price you want to sell it for (I recommend a Stop Limit Order for this as well). Once it hits that price, hopefully it will sell. I say hopefully, because you are selling it to other people who choose to buy it at that price. That doesn't mean there will always be a person out there to buy it at that exact moment (but usually there is). I've been trading for 4 years, and only once was there a moment where I tried to sell a stock and had no buyers. It was a penny stock and I purchased so many shares that there wasn't many people willing to buy them from me, it eventually sold though, but almost turned into a disaster. So I steer clear of penny stocks now, but some people invest primarily in penny stocks. Once you sell your stock, the funds go into your account.
Cashing Out Once you have sold your stock, you can either leave the funds in your account to buy more stock with, or you can cash out. To cash out, your online broker can transfer the funds to your bank account, or you can request a check from them.
Taxes If you live in the United States, you will have to pay Capital Gains tax on the profits you make when daytrading. This can get tricky, so if you're not so great at doing taxes, you may want to have someone prepare your taxes for you and research what percentages you will eventually have to pay, before you go jumping in the water.
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