A daytrader will start in the morning with a group of stocks that look interesting for the day. Volatility is a trader’s best friend and so a daytrader will usually look for stocks that are moving more than usual. This often occurs when news comes out about a company and the company’s stock price moves a wide amount up or down. That type of stock will go on the watchlist of the daytrader.
Favorite stocks also go on the daytrader’s watchlist like their best technology penny stocks. These are stocks that the trader is familiar with and has traded in the past. ETFs are a popular choice for daytraders because they offer volatility and the ability to trade them in both directions. ETFs are available that follow certain industries long and short. A daytrader doesn’t worry about stocks going up because they also trade stocks when they go down. This is called shorting and can be very lucrative for what daytraders do.
After creating a watchlist, a daytrader keeps an eye on those stocks and ETFs until he sees a chart pattern that he likes. Most daytraders use technical analysis to trade. This involves watching a stock’s price action, volume, moving averages and other technical indicators that the trader finds useful. When a daytrading setup occurs, the trader must quickly jump into action and enter the ETF or stock. They will set a stop loss on their trade so that they do not lose too much money if the trade goes against them. They will also set a price target that they want the stock to reach. The amount of the stop loss will generally be much smaller than the gains made from reaching the target. The trader knows that they will never be 100 percent correct so they use a stoploss to protect their capital and keep them in the game. Their goal is to keep their losses as small as possible and let their winners ride.
What daytraders do is not easy. They have to make up their own rules and follow a disciplined regiment that they create for trading. It can be done though. Some traders follow successful plans that have been created by others. This is an excellent way for daytraders to follow a plan that they know will work.