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Setting Yourself Up for Success as a Day Trader

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For those with the talent — and the stomach — for it, day trading can be an extremely lucrative and rewarding way to make a living. In the fast-moving financial world, fortunes can be made quickly, and nest eggs can be grown slowly to create more and more wealth. Of course, it is also possible to lose lots of money on the stock market. And if you’re not careful to set yourself up for success before you embark on your career as a day trader, you could end up losing more than you can afford to.

Day-trading success stories are glorious things, but plenty of day-trading horror stories are out there, too. So do yourself a favor. Put your excitement aside for just a moment and take the time to lay out a sensible plan that will give you the best possible chance of being one of those success stories — and of avoiding all of those horror stories.

Secure your long-term investments

As a day trader, you’ll be making splashy moves with your cash. The active investing strategies that you’ll use will be great ways to make big bucks fast. But they’ll also be risky, which is why day trading with your retirement fund is a pretty darn bad idea. Set yourself up for success by separating your nest egg from your day trading start-up capital. Leave your retirement fund somewhere that you won’t have to spend lots of time managing, and consider it off-limits for day-trading purposes. (You’ll also want to move some of your day trading earnings into your retirement fund from time to time. While it’s always nice to have more money to use in day trading, you can’t forget to put money aside for the long term!)

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Earn and stash away a big emergency fund

Everyone should have an emergency fund — that little bit of cash that we put away for when we need it most. Emergency funds are not for saving up and buying things like houses and cars. They’re for that proverbial rainy day: the lost job, the car accident, the sudden medical expenses. An emergency fund keeps us from needing to dip into our investments or savings. The emergency cash should be stashed somewhere that is easy to access, like a checking account.

Your emergency fund needs to be scaled to your risk. A person with a pension from a past career and excellent health insurance do not need as much of an emergency fund as a freelancer who doesn’t know when his or her next paycheck is coming. As a day trader, you’ll need a very robust emergency fund. You’ll face times when you don’t make any money (or when you actually lose money), and there may be moments when you’ll have to hold onto investments through lean times in order to profit. If you’re going to live comfortably and not have to cash out in a shortsighted way, you’ll need lots of spare cash.

Learn everything you can — ahead of time

The stock market has no pause button. You can’t freeze it like a video game and go look up strategies or cheat codes. You have only so much time to react — and, in the fast-paced world of day trading, that can be very little time indeed.

So you need to know your stuff ahead of time. You need to know your strategies and how you’ll implement them long before your decisions arrive. Now is the time to enroll in that finance course or read that binary options strategy guide. Now is also the time to start reading and watching financial news — and you should keep doing so daily as you embark on your day trading career.

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In the markets, information is power. That means day-to-day information about stocks and other investments, of course, but it also means information about how markets work and how to manage your investments and your risks. Look before you leap, and learn all you can. It’s the most important thing that you can do to prepare for your life as a day trader.

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