Most people think of day trading as a supremely risky and unwinnable game. And that might be true for many that take no time to learn how to do it properly and just jump into the stock market with both feet. Studies show that day trading causes 90% of first timers to lose money, while only 10% of traders out on the market actually make money. But that 10% have an advantage that many others don’t. They got an education.
It makes sense to learn what a limit order is and how it works before you actually risk real money in the stock market. Taking the time to learn how to day trade and how to avoid unnecessary risk is very valuable if you want to build a profitable career as a day trader. Screentime is the key to being a good day trader and you can only get enough time to decipher trends and learn the nuances if you keep the right account balance.
When you make more than 3 day trades (that means buying a stock and selling it in the same day) within 5 days, you will be labeled as a pattern day trader. That means that you will likely have to keep $25,000 in an account in order to keep trading. The risks of day trading mean that these regulations are in place to protect yourself from yourself. Many day traders make money by buying stocks on margin, which gives them the leverage to make larger trades and chase larger profits. But that strategy is not much different from having a credit card. You may end up owing a lot to your broker.
When you start out day trading, you want to be able to limit the risk in each and every trade that you make. That is why you need to learn how to use the limit order. There are two types of the limit order, the buy limit order and the sell limit order. These are ways to make a trade and make sure that it gets executed at the price that you want. A buy limit order means that you place an order to buy a stock at a set price and the order only executes if the stock hits that price or lower. The trick is that the price has to match the ask price of the seller, not just the bid price that is on the market.
Using stop-loss orders is also very important for day traders looking to limit their risk every day. There are no guarantees in investing and trading, but when you place a stop-loss on the trade, you can at least control the potential damage to your bottom line with that issue.
Learning all this day trading terminology is important if you want to get better at trading and make enough money to become financially independent. And that is one of the ultimate goals of becoming a day trader. Learning how to save enough money and make enough to get out of the cubicle rat race and spend time doing what you want to do.