Create a Successful Day Trading Plan in Just 8 Steps
Summary:
Crafting a day trading plan is the first step to enter the world of trading. Having a proper trading strategy and risk management tools elevates the probability of success. You can effectively generate profits using a thoroughly outlined day trading plan.
Day trading involves greater scope for both risk as well as reward and thus requires careful planning and disciplined execution. To become a successful day trader, you need a well-thought-out trading plan that clearly outlines your objectives, risk management strategies and investment goals. This blog will provide you with a stepwise guide explaining how to create a day trading plan. First things first, let’s get the basics cleared.
What is day trading?
Simply put, it involves the buying and selling of securities throughout the trading day, when the stock market is open. For instance, in India, the National Stock Exchange (NSE) is open on weekdays and closed on weekends, except for any special trading sessions. Day traders use this time to predict and earn money from intraday price changes in assets such as bonds, stocks and commodities.
Intraday price changes can be understood by knowing what intraday trading is. When a stock or any other security is bought and sold on the same day, it refers to intraday trading. Any fluctuations in the stock prices seen during the trading hours of that particular day refer to intraday price changes.
As the name suggests, day trading is an excellent short-term investment strategy. You can exit all your trades (sell all your assets) by the end of the day so that you don’t have to hold any securities overnight. Unlike long-term investment, where you buy and hold the same asset for a long time and wait for time and compound interest to work its magic, day traders use short-term opportunities to generate quick profits. Incorporating the best day trading strategies can further improve your odds.
How to create a day trading plan?
We have curated 8 steps for you to implement day trading strategies within your investment plan –
| Step 1 | Set clear goals and objectives | To create a day trading plan, it is essential to define your objectives. Your investment decision will depend on whether you are looking to make supplementary income or a full-time career out of trading. Your goals will determine which trading strategy is best suitable for you. |
| Step 2 | Pick a trading strategy | Choose a strategy that aligns with your goals, time commitment and risk appetite. There are plenty of options, including –
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| Step 3 | Create a trading system | Come up with a trading system that features the following-
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| Step 4 | Risk management | For robust risk management, include this –
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| Step 5 | Maintain records | Keep a trading journal to track your performance, stay updated and learn previous trends. Maintaining a record of each trade, your entry and exit points and profits or losses gained can help make more informed decisions in the future and correct previous mistakes. |
| Step 6 | Backtesting | Before making a trade with real money, backtest your strategy with adequate historical data. This will help you analyse the viability and profitability over time. It will also let you make adjustments to your trading system as and when required. |
| Step 7 | Continuous learning | To survive in today’s dynamic financial market, it is crucial to remain adaptive. The strategy you use today may soon become obsolete and render useless. Always be ready to experiment with new day trading strategies and tools to stay competitive. |
| Step 8 | Learn to read charts | Information regarding the open, close, low, high and last closing price of a share is key to make an informed trading decision. To access this data traders must know how to read charts. Learn how to read different stocks charts with Upstox. |
Helping beginners succeed at day trading
Secure your investments with a relevant and well-structured day trading plan. With a proper framework and discipline, traders can increase their chances of success. There are a variety of trading strategies that can help navigate through different investment options. Stay updated, know your risk tolerance, outline your investment goals and accordingly choose a day trading strategy best suitable for you.
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