Know your temperament
You may be a long term stock trader, a position trader or a day trader. You cannot succeed in any trade style unless you are well informed. And even if you are well informed, you cannot take right and successful decisions in stock trading unless you work in a relaxed and tension free state of mind.
A tensed and worried mind, even if well informed, is prone to make mistakes and suffer losses. You tend to hit the wrong buttons on your computer or fill in wrong inputs. So the first important factor in stock trading is to remain relaxed.
Know your temperament, your financial position and financial goals before you decide what trade style is suitable for you. Do you understand the jargon associated with stock trading and research? Do you enjoy doing research, both fundamental and technical? Do you enjoy sitting glued to the computer all day long or you hate the addictive monster? Do you believe in patience and perseverance or you want quick results? If you work under compulsion, you are more likely to lose than win in stock trading.
You can make profits in stock trading in any investment style provided that suits your temperament. Some people hate to exit the market too soon while others take pleasure in hasty retreats.
It is quite well known that you can make and lose money fast in day trading. Even if you ignore this aspect and are confident that you can earn more than you lose in day trading, there are certain other aspects, which can be ignored only at your peril.
Each investment style has its own unique advantages and pitfalls.
Day trading can be expensive
Day trading involves placing your trading orders and expecting executions more frequently. You require day trading specific analysis tools. You have to sign up for expensive real-time upgrade services. You may require costly analysis software and advisory reports. It must be understood that analysis techniques and expenses associated with them differ based on trade duration.
All these services come with charges, which significantly add to your costs in day trading which in turn may eat into your net earnings. The so-called- all-in-one trade firms that offer multiple trade services do not provide free services. On the contrary, the day traders are the mainstay of their substantial income, which they receive in form of commissions, monthly fees and software upgrade fees.
Position traders or long term traders do not have to pay such hefty fees to their brokers.
It is generally believed that the day traders do not require tools for fundamental analysis, as tools are considered more useful for position traders or long-term investors. Day traders usually rely more on very short-term technical signals that keep changing time and again during the course of the day. This view appears to be a bit flawed.
Combining technical analysis with fundamental analysis
Most successful day traders and market analysts will testify that market fundamentals play an important role in determining what basically a good and paying stock is. Since day traders are quickies and rely more on tick-by-tick systems, they probably do not have time and patience for fundamental research. This approach, however, limits the scope for their analysis.
It must be understood that whether you are a day trader or a position trader, you must utilize all the available tools such as technical indicators, pure fundamental analysis and of course their hunches or intuition born out of experience to secure the best results.
Do your homework
You must do your homework before entering into any type of trade. This should involve using fundamental analysis to determine the expected directional trend of the trading market. Fundamental analysis is useful both for long term and short-term positions. Once you know the fundamentals, you can improve your performance by using the technical analysis.
According to stock market experts" by knowing the fundamental elements affecting your market, you can be prepared to confidently enter short-term trades that are technically indicated and supported by the fundamentals... The fundamentals act as a compass pointing the general direction your market will go. Your short-term technical signals can then guide you through the labyrinth of fluctuations along the way."
You must, therefore, study the database of daily prices, volume and other related information. It is always advisable to combine a purely technical perspective with fundamentals to anticipate the price trends. Knowledge of fundamentals can help improve the chances of making profits in any trade duration.
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