Day Trading Basics: Using a Limit Order Properly

As a beginning day trader, there is much to learn. There is very little that you can glean from just jumping in and trading at full speed the first day you decide to become a day trader. That is a great way to lose a bunch of money. That is where you don’t even know what a limit order is or how to strategize to get the most profits out of your day. You are a newbie. You need to act like one.

That is why you need to learn how to place and manage limit orders. As you get to become a more profitable and smart day trader, you will set up hundreds or even thousands of limit orders per day. That will allow you to place an order for a stock, but set a optimal price. If that price is not met then the limit order will not go through. It is an excellent risk management technique that will pay off in the long run. You will save yourself from making bets that will lose big. And you will set yourself up for success.

Being a day trader requires many hours of study and fierce determination. You need to be able to spot trends quickly and without hesitation, act on them. That requires a level of market understanding that is only created by a long term study of the day to day actions of the exchanges. You can take online classes that lay out day trading strategies, and you should, but it is also screentime that will pay off big time. It allows you to watch the market in real time and be able to jump on stocks that really can provide profitable opportunities.

Going back to the idea of limit orders from before. A limit order can be placed on the buy or sell side. If you set a buy limit order, those shares will not be bought unless your set price is reached. And that must be the ask price of the seller, not the bid price that is out there. The purpose of the exchanges is to create a place where the bid and ask prices are reconciled. On sell limit orders, you can list your intention to sell a stock, but only if it his a certain price in the market. The orders will only be executed if the set price is hit, either on the buy or sell side.

Risk management is such an important part of being a day trader. You need to be able to create accurate records of what you are trading each day and be able to track your profits and losses without any problems. That allows you to set aside the right amount of money for taxes and to keep track of your profits. The ideal profit/loss ratio is 2/1 for day traders. That means you can be right only 60% of the time and still make money, if you are able to make your winning trades twice as big as your losing trades. That is how you come out ahead.

One of the keys to being a good day trader is educating yourself. You need to be able to find a day trading education site that will teach you actionable strategies, risk management techniques and provide you with a chat room environment that will surround you with like minded individuals. Veteran instructors with experience in the day trading space is very helpful.