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Friday, May 13, 2016

Day Trading Strategies for Beginners

The post title is a bit of an oxymoron - because beginners should stay as far away from day trading as possible. Why? Because to make money on a consistent basis from day trading, one requires two important skills:

  • more than a working knowledge of technical analysis
  • a trading strategy that has been honed over several years

But isn't technical analysis what this blog is all about? Yes. However, learning about technical analysis may be necessary, but it is not sufficient. 

A trading strategy for picking entry points, exit points, setting stop-losses, identifying chart patterns while they are still forming and having the discipline to stick to the strategy takes many years of experience.

Lack of appreciation of the skills and discipline required for trading success is why majority of day traders lose money

That is like warning someone that smoking and drinking are injurious to health. People do it anyway because their peers are doing it, and they don't want to miss out on all the fun.

It is the fun and excitement of making money with very little capital outlay and even less effort that draws beginners to day trading like moths to a flame.

There are two choices in front of beginners:

  • tread the path of slow and steady - gradually build up your capital by investing your monthly savings in one or two mutual funds; once you have around Rs 5 Lakhs in your funds, think about building a portfolio of individual stocks; then keep adding to your portfolio from your monthly savings, and retire rich
  • jump into the stock market after opening a demat account and a trading account; pay some margin money and start day trading

The first choice is the one I endorse. It is the saner and safer choice that almost guarantees investing success. But it is also boring - like watching a fruit tree growing from a sapling till it starts bearing fruit several years down the line.

If the adrenaline rush of making quick money with very little effort or cash excites you - then you will try your hand at day trading anyway. Regardless of all the warnings that it may be injurious to your wealth.

In that case, you might as well go through Justin Kuepper's article 'Day Trading Strategies for Beginners' in investopedia.com.

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