What Beginners Must Do While Day Trading in Nigeria

If you’re reading this you are probably contemplating starting a job in day trading.

Yes, I said job because day trading is no side hustle and should be approached with the seriousness it requires. When preparing to take up a job you get the right education first. The same thing applies here.

Day trading generally involves using leverage to buy and sell securities in the capital market within one day. All trading positions opened at the beginning of the day are squared off at the end of the day in the case of stocks, or you would pay overnight charges in case of other markets like CFDs.

Beginners always get the impression that day trading is a source of quick money and don’t take the time to analyze the stock or the markets they want to trade-in. Failing to conduct a technical analysis on the instrument to be traded leads new traders into recording losses and they get discouraged.

Not to worry, there are some tips to help you in a day trading venture& be consistent.

 

Learn with a Demo Trading Account

Practice buying and selling using a demo account. This is also known as paper trading.

Here, the money used to trade is not real so feel free to try different methods& strategies as you will neither lose nor earn any real money.

A lot of demo apps can be downloaded from App Store or Google Play, for example, there are a few Tier-1 regulated forex brokers operating in Nigeria like HotForex, FXTM, OctaFX that offer their trading apps with demo accounts for free download on iOS & Android.

You can download these apps & trade CFDs on various instruments like Commodities, Stocks, Indices, Forex on a demo account.

Demo Account is important for learning purposes. You should use a demo account to sharpen your skills before venturing into the battlefield.

How long should I practice before going live?

I would personally recommend 5 months so as to let you mature properly and remember to keep a diary of your experiences, and also go through the logs of your trades to understand where you are winning & where you are losing.

Track why you were winning; how much were you losing? It will help you understand your risk& how to manage it.

Record keeping of your demo sessions would help you navigate the real trading world.

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Trading is not Investing & you could Lose your Capital

Trading is not the same as Investing.

Day trading is challenging, and there is a high possibility of losses. You could lose all your investment. There is nothing passive to Day Trading.

So, it is important to remember that you should not day trade with money that you cannot risk losing, as there is a high chance that you could lose it. You should not gamble with money on day trading.

If you are a passive investor, then you should stick to Mutual Funds or Real Estate& similar investment plans. Also, you must only deal with licensed dealers which are authorized by the SEC.

If you do want to day trade, then start small. You will gain experience and improve your trading skills as time goes by. Also, ensure you keep acquiring knowledge.

Understand the Instruments that you are Trading

Not all markets are the same. Forex& Stocks or Equities markets are popular for day trading in Nigeria. But both these markets are very different with different risk levels.

If you are trading Forex, then you should know that you are trading CFDs, which are high-risk leveraged instruments, and you could lose your money very quickly. Also, you are trading with brokers that are not licensed in Nigeria, as Retail forex trading is still unregulated, although it is not illegal.

But forex market is considered liquid if you are trading major pairs, and it can be very volatile with high fees if you are trading exotic currencies like TRY, MXN etc.

If you are trading stocks, then you are trading via a licensed NSE broker. In case you place a trade on a volatile stock that moves 20% in a day, you could lose very quickly. Generally, the Premium Market stocks like MTN, Dangote, GT Bank etc. are less volatile & more liquid to trade.

So, you must understand the market & the instruments that you are trading. Never trade in a market that you don’t understand.

 

Stick to Your Plan

Before you click the buy button for any stock or security you should have a plan A and plan B. if the price drops what do I do? and if the price increases at what point do I sell? (How much profit is enough for me? How much would you Lose? Is the Risk to Reward right to take this trade?)

This is called having a Trading plan. You are prepared for any trading outcome.

“Do not buy or sell due to the fear of missing out (FOMO)”

If you do not have a trading plan you might as well go home as you should not be trading.

Not having a plan will leave you defenceless when the tide is moving against you. You know the saying that “time flies when you’re having fun”?Well, while day trading time can move very fast and decisions need to be made quickly hence the need for a well thought out entry and exit plan.

 

Be Reasonable& Don’t Have Unrealistic Expectations

While day trading you need to be realistic in your approach and also in your decision making. Making an N2,000 profit in a day is not so bad. As they say, Rome was not built in a day.

Day traders accumulate little wins and it sums up to something tangible.

But also, it is important to have realistic expectations. If you are risking N10,000 to make N5000, then it is not the right trade. The downside must not exceed the potential upside.

Remember, in day trading you could win or lose. Losing is normal the only thing is your number of wins must exceed your number of losses. Do not panic when you lose. Also, never lose more than you win.

Resist the urge to go into the markets every day, as there may be days when there is no right place for a good trade.

 

Study & Analyze the Markets

If you are trading stocks intraday, before you click on that buy button, have you carried out a technical study of the stock or the instrument that you are trading? Do you know the history of the stock? The price fluctuation patterns over the years?

These factors give you a clue as to what to expect. I am not saying it’s 100% foolproof but answering these questions arms you with the needed knowledge with which to trade.

When a proper stock analysis is done, a trend can be established. Also, a ceiling price and a floor price can be established and this guides you on when to buy or sell a stock.

“It is always advisable not to go against the trend”

As a day trader, the trend is your friend. You should always seek out the trend whether upwards or downwards and trade accordingly. As a rule of thumb, when the price of a stock is trending downward you should sell off your liability and when trending upward it is best to buy more of the stock.

Also, as a day trader, you must keep abreast of the state of affairs in the world so as to make more informed trading choices.

 

Time& Patience

The markets can be unpredictable so as a day trader you need to master the art of time &timing.

I mean knowing when to buy and when to sell. You also need to be a little patient so you do not end up closing your trades prematurely.

Also, remember that day trading is very hard as it is really difficult to time the market. You should be patient to sit out when things are not going as you expect them to.

Hmm, I hope I don’t end up waiting in vain

We all hope so too but you need to be reasonably patient. Give the market time to do its thing.

For example, if you are investing in stocks, most downward trends could become profitable if you stay invested for a few years and what happens if you have already quit? You end up panicking & trying to make another unreasonable decision.

Don’t try to stare at the charts too much. If you have properly done your analysis, then give the market time to go in your direction. If something changes during this period that did not match your analysis, only then you should intervene.

 

Manage your Risk

To keep you from making losses when the market price of a stock is dropping rapidly, you could give your broker an instruction. This instruction will be to exit your position and sell off your stock immediately after the stop price is triggered.

The stop price is determined by you and it reflects your risk appetite. The stop price shows the loss you are willing to take before you exit your position.

If your stop price is N10, and the price of the stock is N25, it means once the price of the stock falls below N10 your position will be exited automatically. It also means you are willing to lose N15 per stock before exiting the trade. By giving this instruction to your broker, you have issued a STOP ORDER.

If you are an optimistic trader you may want to execute an order but with a little tweak to it. Instead of having one stop price as I explained above, you give 2 stop prices. One for exiting your position and another for buying or selling the stock if the price improves. By doing this you have issued a STOP LIMIT ORDER.

Both stop-loss and stop-limit orders are classified as stop orders and are generally used by day traders to hedge risk.

 

Decide How Much you are Willing to Lose

It is advisable not to risk more than 2% of your capital per trade.

Every day trader has a trading account that houses his trading capital. When you set out to trade you should have a plan that says on each trade, I am strictly going to put up only say 1% of my capital.

If capital is N500,000 then you are comfortable losing 1% of capital which is N5,000 on each trade. It also means that on each trade you will not risk more than N5, 000.

 

Work on your Psyche

Your emotions will always betray you while trading. This is a very difficult part of trading to master.

While training on a demo account, emotions are not involved so you can take risky decisions but once trading live your emotions attempt to get the better of you and you must not allow this.

If you are recording losses, don’t try to make up for them by dipping your hands into your capital. Remember we agreed not to spend more than 2% of our capital on a trade.

Always keep your composure even in the face of defeat and stick to your game plan and you will turn the tide around eventually.

 

Do not Patronize Illiquid Stock markets

You would want to trade in the markets in which you can place your orders without having to worry about exit at your desirable price.

This is why as a trader; you should trade instruments that you can easily buy or sell off when push comes to shove.

Liquidity of stock or any other market could also be affected by events around the world like natural disasters, political turmoil etc. Such stocks can be very volatile & move a lot against your direction.