5 things you should do before you start day-trading

Investing in the share market is a great way to make money. Most people use their share market investments as an additional source of income. Typically, investors invest in different shares, mutual funds and other money market instruments. Then there are those investors, who conduct trades on a regular basis – they invest in shares each morning with a view to make profits before the trading day ends. Such investors are known as intra-day traders and this type of trading is considered quite risky, but it has the potential to help you create a huge corpus too. But before you start trading, you need to do these 5 things mentioned below.

1. Conduct an honest self-analysis

In order to succeed as a day-trader, you need knowledge about the share market, as well certain skills and a commitment to this lifestyle. So before you open a day trading account, you need to conduct an honest self-analysis. Check if you can really put in those long working hours and whether you have the appetite to take risks on a daily basis. You need the right attitude and aptitude; you should be able to devote a lot of time and be able to self-learn, since a lot of learning in this field happens on the job.

2. You should have a sufficient investment capital

That you can consistently generate profit through day trades is a myth. Losses are a huge part of this world. You may suffer several losses, before you recover your investment and turn a profit. As such, you need to ensure you have a sufficient investment capital before opening a day trading account. You simply cannot start trading with a small capital as you would be setting yourself up for failure. That said, you should start investing in small amount and deal in only up-to 10 stocks when you begin day-trading. But a larger investment capital is a must for successful day-trading.

3. Understand the trading market and securities

As a day trader, you need to know the basic things about how the trade market works. From simple details such as trading hours to the more integral things like tradable instruments, margins required and global economic conditions; you need to thoroughly understand the nitty-gritties of the trade market. You should also have adequate knowledge about stocks, mutual funds, ETFs, commodities, options, futures etc., and such investment instruments before you start trading.

4. Create a trading strategy and plan

If you are a new investor, it is recommended that you take help from a financial manager, who can help you create an investment strategy that suits your financial goals and your risk appetite. Start with a simple strategy and gradually move toward the more complex ones upon gaining adequate experience. Your trading strategy should also be complemented with a plan that highlights your enter/exit strategy, resource allocation and sums to be used per trade, assets you can trade and trading frequency.

5. Practice the art of money management

Traders need to understand that money management is at the heart of day-trading. You need to constantly decide how much you can afford to spend on your trades. You may have only 3 out of 10 trades that are profitable, but you can make a huge profit from those three trades alone, if you manage your funds adequately.

In conclusion, before opening your trading account, you need to remember that this world is rather dynamic. You can consistently make or lose money for long periods at a time. As such, it is very important to create and review strategies from time to time.

Maithili Pawar is a finance professor. She has written on share market basics. Through this article, she has provided detailed information on stock market.