Are You Ready to Day Trade? Here Is a Top 10 Checklist for Beginning Traders

One of the exciting aspects of day trading is the rapidity at which the market changes. Unlike the stock market where prices in terms of gains and losses happen over a long period of time, the OTC (over-the-counter) day trading market, such as Forex, can fluctuate many times within the course of a single day. Day trading is not for everyone because of this volatility and if you believe you are ready to make that first trade, you might want to take a look at this checklist first. Understand the benefits and risks of day trading.

1. Understand market conditions before making a trade – Especially in Forex where currencies are ultra-sensitive to market conditions. Understand the underlying economies.
2. Is the brokerage you are going to trade with duly licensed and registered? In the UK, for example, you would only want to open a Forex trading account with a broker authorized by the Financial Conduct Authority, FCA.
3. Have you learned with a day trading practice account? If not, you really should get some practice time in before going live with a trade. Remember, day trading can be volatile and as such, risky.
4. Are you prepared to handle any losses? If you don’t have capital in reserve to cover any losses on a leveraged account, you could lose more than your initial deposit. This is a mistake many new day traders make.
5. Do you really understand the benefits vs. the risks? Yes, you can make a great deal of money over a period of time, in smaller increments, but you need to be an experienced trader to know how to cash in on that very same volatility that makes day trading so exciting – and rewarding!
6. One very important common-sense tip – Never act on the advice of anyone who hasn’t made a small fortune in day trading! That’s a sure way to lose your proverbial shirt.
7. Learn when to exit to minimize losses. Remember, day trading is so exciting because of its very volatility, but many newcomers think that because a pair devalued so quickly it will rise again just as quickly. Not so! Remember those market conditions mentioned above? This is where they really come into play.
8. Beginners should never use a margin. This is where you put a deposit – as mentioned above when leveraging – with your brokerage. If you bet wrong on currency pairs, you will end up owing your broker if you lose.
9. Seasoned day traders advise you to avoid making a trade within the first 15 to 30 minutes after a market opens. The reason? Panic! Due to activity of the previous day, many traders buy or sell in panic mode which isn’t reflective of actual market conditions. Give the market time to settle down before trying to gauge current conditions.
10. Perhaps most importantly – log your transactions! Keeping a journal is imperative because we really should learn to learn by our mistakes. That’s right, it’s a learning process and we can learn how to learn from our mistakes.

Recognise that you will make mistakes as a new day trader. It’s inevitable and anyone who tells you otherwise is lying to you to gain unfair advantage. However, if you are careful, you may not actually lose money on those ‘mistakes,’ you just may not gain a profit. As the largest and most liquid of trading markets, according to Investopedia, Forex can offer huge gains, but it can also offer losses. Learn to minimize your exposure to loss with these 10 tips and you will be a successful day trader sooner than you think.

One final thought to take away from all this – practice makes perfect so use that practice account and trade small in the beginning. Once you’ve got your feet wet, increase your trades. Until then, learn from the tortoise. Slow and steady wins the race.