Day trading is one of the most active forms of trading which require high position sizing and quick responses to market changes. Because of this activeness, day trading involves more risk. The requirements of day traders are also high including real-time market access, news, charts and powerful technical analysis tools; and any system failure, wrong information or ineffective price analysis can result in huge loses. Reducing the risks involved is essential and here are some suggestions for that.
1. Targeting stocks of certain groups or industries.Specializing in stock of a handful of known industries or companies helps you to study the market deeply and to find more profitable trading opportunities. But never over specialize on one industry or group of companies, as this can increase your risk to market.2. Creating and trading from a Hot/Short list of stocks. Create a list of stocks which fall in to your day trading regulations, such as price, volatility, risk, news trading, etc. Now you can screen stocks to be traded from this short list. 3. Updating your Short List. Regular modification of your day trading short list is also important. Constantly remove equities which no-longer fulfill your regulation or which have lesser trading opportunities, and constantly add new equities/groups which satisfy you regulations. 4. Practicing basic risk minimizing tactics. Like using of stop losses, never adding to losing positions and closing positions when market is against you. 5. Keeping low risk levels. Find a suitable risk level according to your account size, stocks trading, risk capital involved, margin usage, etc. It is good to limit risks below 1-2% of your account size. 6. Using lesser number of but effective technical analysis tools. Technical analysis and stock screening is always necessary but be sure that you are using the right tools at the right time to evaluate the right stocks. 7. Never trading in high uncertainty. It is always the better option to keep the money in hand for profiting from future opportunities than wasting that on totally uncertain positions. 8. Limiting the frequency of trades. Never trade stocks because of greed, trade only when there is an opportunity. It is better to concentrate at one trade a time, as it helps you in active management of trades and better position sizing. 9. Being vigilant with your margin trading. Trading on margin is a double edged sward; it can magnify your profit but also can magnify your loss. Keep reasonable margin levels with respect to your position size, profit goal and shares traded. High margin trades are better when you are sure about price direction. Beginner traders should use lower margins. 10. Evaluating your success and failures. For that write down all your trades, including what helped you to profit from the trade or what caused you to suffer loss. Go through them regularly.
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