IS TRADING FOR ME ?

Questions to Ask

Are you thinking of giving day trading a try? If so, here are some preliminary questions which you need to ask yourself before starting out. The answers will begin to help you decide whether or not you are ready to take the plunge into the rather fast-paced (and risky) arena of day trading.

Why do I want to day trade?

Ask yourself why you want to day trade. Is it because you perceive day trading to be a relatively easy way to get rich quickly? Is it because several of your friends and colleagues are doing it. If so, be aware that none of these reasons are valid reasons to commence day trading. First, although one can make a lot of money day trading, it is far from easy to do so, and the risk of large losses is often there. Second, successful day traders have a true love or passion about their trading activities. If you do not enjoy reading charts, dealing with numbers, reading market news, interpreting stock quote screens, learning new trading strategies and working independently in a fast-paced environment, then day trading is probably not your cup of tea. In other words, day trade only if you think you will enjoy the challenge, and are prepared to spend considerable time to acquire the knowledge and experience necessary to become successful. Otherwise, look for something else to do.

Do I have enough capital to day trade and is this money I can risk?

Even if you get past the previous question, and conclude that day trading is something that you would truly love to try, you must ask yourself whether you have capital on hand to effectively day trade. Although opinions differ, Rs 50,000 is about the minimum capital required. Further, this should be "100% risk capital". In other words, if you were to lose the whole of this capital, would there be any significant negative effect on your finances and would you be devastated at losing it? Day trading is an extremely risky venture, and you must be able and prepared to assume all of the risk. Can you afford to? If not, forget about day trading.

What experience/knowledge level do I have?

One of the main reasons beginning day traders fail is a lack of knowledge. Ask yourself how much trading/investing experience you have. How long have you been involved in the stock markets as a buyer/seller of shares? What do you know, and what is your knowledge level, concerning the equities markets. In particular, can you answer all of the following:

What is a bid? An ask?What is a bid size?An ask size?What is the tape? What is a market maker?What is a specialist?What is a block trade?What is a gap open? What is a tick?What is a market order? What is a limit order? What is a stop order?

Just a Start

The questions posed above are by no means all of the questions you should ask before you commence day trading. They do however provide a good start, and should help you decide if you are likely to be ready for day trading and whether day trading is for you.