If you’ve spent a while examining the stock market, and you think it’s time for you to take a more active role in building your wealth, then you may be considering a shift to day trading.
This form of investment involves buying and selling securities within a very short period of time.
Rather than making small purchases and waiting for your cash to build over time, you concentrate on making profits based on the small shifts and changes in the marketplace.
Of course, while this can be a very exciting environment to interact with, it’s also worth knowing that there’s a lot you need to learn too.
Many experts in the environment spend years developing their skills and becoming better at what they do.
To get you started on the right track, here is your guide to some of the key terms you need to know.
Learning the Lingo
Succeeding in the day trading environment isn’t just about having the right technology on your computer or working with a reliable broker. Although both of those things are important, you need to learn how to talk the talk too.
This means coming to terms with some new language, like:
- Fibonacci Series: This is a list of numbers in which each number is the sum of the two that came before it. Proportions based on this series indicates that an investment may well be profitable.
- Kelly Criterion: This is the mathematical strategy that allows people to trade with a higher chance of success. In the simplest version of this strategy, the percentage of the capital that you trade should be equal to the probability of the trade price going up instead of down. This strategy works for a lot of people to reduce risk.
- Pattern day trading: This is a common term used in the environment which refers to someone who has a specific amount of money in their accounts at all times. Additionally, these individuals also make a minimum of four trades within a period of five days.
- Wash-sale rules: Finally, this rule is a tax trap that can capture a lot of investors that aren’t careful when they’re first getting started. This rule says that if you sell something for a loss, then you can’t deduct that loss if you buy the same thing 30 days before or after selling. Day traders do have the potential to buy and sell a lot of different securities, but they might also get involved with the same stocks.
Becoming a Better Investor
There’s more to earning a fortune on your shares and assets than just learning some of the common terms used in the environment.
You’ll find that learning as much as you can about the industry, you’re involved with can help you to make better decisions about where to spend your money. You’ll also find that it’s much easier to figure out what other people are talking about in forums and online communities too. This could make it easier for you to interact with the environment around you when you’re day trading.
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