Understanding the Working Principles and How to Trading Stocks

Daily stock trading is increasingly popular among investors because it offers faster profits. How to trade daily stocks may not look too complicated, namely using a scheme of selling and buying shares based on the price achievements of the shares per day.

However, daily stock trading is known to have a high risk, so investors need to be extra careful so they don't suffer losses.

To minimize this potential loss, you can try the tips and methods for daily stock trading which will be explained in the following article. But before that, let's find out the level of a stock trader and how daily stock trading works.

Stock Trader Levels

Trader is a term for someone who does daily stock trading. In this case, traders are divided into five levels, which include:

1. Growth Investors

Growth investors are traders who are disciplined in investing by buying shares regularly within a certain period of time. The nominal purchase tends to be fixed, even though the share price fluctuates.

2. Trend Following

At this stock trader level, traders start buying shares when the price has started to move. Where the usual guides for this are daily charts and moving average indicators.

3. Swing Traders

Swing traders work by taking advantage of the rise and fall of stock prices as a buying and selling area. In other words, they will hold (hold) the asset they want to trade for several days or weeks, and will only sell it when the price reaches the highest value.

4. Day Traders

Day traders or day traders take advantage of market euphoria which is marked by price and volume spikes. Where sudden market movements due to an event actually provide opportunities and benefits for day traders.

5. Intraday Traders

Traders at this level take advantage of price volatility or price swings that go up and down in one day, two days, or a maximum of three days.

How Daily Stock Trading Works

Simply put, daily stock trading is the activity of buying and selling shares by taking advantage of fluctuations in market prices every day. When compared to stock investing in general, daily stock trading has the following principles or ways of working.

1. Short Time

When someone invests and deposits funds today, the results are usually obtained in the medium and long term. To be precise, from 3, 5, to 10 years.

It's different when someone does daily trading, where the results can be obtained in a short time, namely daily. For example, you buy a stock in the morning, then in the afternoon or evening you see that the stock is at its highest point, so you can immediately sell it and you will automatically get a profit.

2. Must be analyzed

Actually, every type of investment needs to be analyzed. However, at the trading level, you really shouldn't buy stocks carelessly, but must analyze them in detail and precisely first.

You must do a market analysis, starting from looking at a list of potentially profitable stocks, to when is the best time to buy and sell stocks. Once you misanalyze stocks, it is very likely that you will experience losses.

3. Using the Buy and Sell Principle

As previously mentioned, when investing in stocks, you cannot sell them on the same day. This is because new stock profits can be seen after a long period of time, whether monthly or yearly.

It's different with trading. Traders must use the buy and sell principle, which means buying shares when the price is low and selling them when the price is high on the same day.

Tips and How to Trade Daily Stocks

So, how do you make daily stock trading profitable? Here are some tips and how-tos.

1. Start with Small Capital

For beginner traders, start trading with small capital first. This is done to measure the profit opportunities that will be obtained and minimize the losses received.

When the profits are small, you don't need to be disappointed. Most importantly, trade correctly so that the results can be seen. This small capital also won't make you too sorry when you experience a loss.

2. Use Cold Money

Daily stock trading tends to be high risk. The success of a trader also depends on his ability to manage money or money management. Where one of the main principles in money management is trading only with cold money (idle money).

In this case, cold money is extra money that won't be used for a long time. Simply put, this money is not used to fulfill needs, such as house rent, school payments, and the like.

3. Do it Gradually

If you have prepared cold money for trading, then start gradually. Do not enter all funds at the same time or one-go. Its purpose is for you to understand the daily stock trading market better. Besides that, you can also protect your stock capital from being hit by a storm when the price is falling.

4. Use a Trusted Trading app

Considering that many young people are tempted by stock trading, now there are also various securities apps for trading. Make sure to use a trading app that is licensed by the Financial Services Authority (OJK) and has a good track record.

5. Create a Trading Plan

The next method of daily stock trading is to make a trading plan or stock trading plan that is used as a guide by traders in buying and selling shares on the Stock Exchange. This trading plan itself consists of four components which include:

List of stocks for trading.
The entry point or moment to buy shares.
Exit point or moment to sell shares.
The cut loss point or the moment to sell shares when the price drops.

6. Pay attention to the Risk and Reward of Every Trade

The Risk Reward Ratio (R/R Ratio) is an indicator used to measure the comparison between the potential profit and the risk of a trade. To get the value, you can divide the risk of loss with the potential profit based on the trading plan that was made before. Mathematically, the formula for the Risk Reward Ratio is as follows.

7. Discipline in Implementing the Trading Plan

Finally, tips and how to daily stock trading is discipline in carrying out the trading plan according to plan. This is indeed not easy to do, especially because of human nature which sometimes makes decisions based on emotional influence rather than brain or reason. However, it needs to be instilled in the mind that discipline will bring you maximum investment returns.

Closing

Thus the description of the working principle and how to trade daily stocks. In addition to the methods mentioned above, you also need to increase your knowledge about stock technical analysis which is widely used in daily stock trading.

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