It is very common for folks just beginning to day trade to have limited funds. When this is the case it is important to set up a budget. Use trade sizes that fit your budget. Staring out with limited funds does not mean that you are doomed to failure. Rather it means that you will need to develop the discipline to enter, manage, and exit your trades efficiently. This is about day trading on a budget and how to thrive on limited capital.

Understand the Basics of Day Trading and Set Yourself up With the Right Tools

Starting out with limited funds can be a blessing. You do not have the luxury of losing money again and again before you get it right. Thus, you are forced to learn the basics and set up with the right tools. Day trading involves taking profits from the normal volatility that occurs during a trading day. It has little to do with investing. Thus the tools of the trade include technical indicators much more so than analysis of fundamentals. One will need a trade station and a day trading platform. Then a novice trader needs to trade in simulation (not spending any of their own money) until they have learned to use the necessary tools.

Create a Strategy That Suits Your Budget

There are day trading strategies where a person takes on a lot of risk in an attempt to bring in huge profits. This is generally not a good approach in day trading. In fact, it is an awful approach for anyone starting out with limited funds. Rather, one needs to develop a strategy that that has limited risk and promises to generate moderate profits over time. For example, traders who use a scalping strategy enter and leave the market quickly, taking small profits, and not risking big amounts with any single trade.

Choosing Trade Size and What Assets To Trade

There are assets that it makes sense to trade on a limited budget and assets you generally should avoid. For example, traders may think that day trading penny stocks is a good idea because they are cheap. However, penny stocks trade in low volume and poor liquidity. This makes technical indicators unreliable and creates the danger of your being trapped in a bad trade as the bottom falls out of its price. On the other hand, excellent choices for those day trading on a budget are micro futures contracts.

Micro Futures Contracts Are Ideal for Day Trading on a Budget

Day traders in the futures markets can trade things like S&P 500 futures or a downsized version called a mini future or a further downsized version called a micro future. S&P 500 Mini futures are one-fifth the size of a standard S&P 500 futures contract. Micro futures are one-tenth the size of the E-mini S&P 500 futures contract. For a day trader on a budget the basic difference in trading a micro versus a mini versus a standard S&P 500 futures contract is the contract size.

Research Market Trends and Financial News to Make Informed Decisions

During the trading day there is always a risk of having you nose stuck so deeply into your technical analysis tools that you do not see a big trend coming or miss something important in the financial news. This is the timeless issue of not seeing the forest because of all those darned trees! Having a news feed that you check from time to time is useful in this regard. Also, one can have a moving average set for a longer time frame that would usually be employed in day trading. This can help the trader remain aware of the broader trend of the market in which they are trading.

Practice With Paper Trades First Before Entering the Markets

It is useful to think of day trading as part performance art. You can know all about strategies, technical indicators, and analysis of evolving trends and still lose money. Seasoned actors practice before going on stage. Smart day traders use the simulation trading app on their day trading platform to make trades based on real historical data. They never progress to live trading where they risk their own money until they routinely profit in their “paper trades.”

Set Reasonable Goals and Targets So You Don’t Overextend Yourself

Day trading is a game where you want to hit lots of singles instead of trying to hit home runs. Thus, a successful day trader sets reasonable goals and price targets. They develop strategies that create small profits and then they repeat these strategies again and again. As we teach at DayTradeSafe, success comes from exercising discipline over and over again in entering, managing, an exiting day trades. A successful and accurately employed approach to day trading can be your own personal cash machine if you avoid unreasonable goals and do not overextend yourself.

Examine Different Trading Platforms and Stick To One That Best Fits Your Needs

The trading platform a day trader uses is critical to their success. They are not all the same. At DayTradeSafe we suggest NinjaTrader. It is our preferred trading platform as it provides real-time futures data, unlimited real-time forex data, advanced charting, an advanced trade simulator, strategy development and backtesting, and connects to NinjaTrader Brokerage, Interactive Brokers, TD Ameritrade and others. If you would like help in choosing a trading platform, talk to a trusted advisor such as DayTradeSafe before making your purchase.

Leave a Reply

Your email address will not be published.