Day Trading for Beginners
Day trading for Beginners: Learn day trading from scratch.
Based on nearly 20 years of experience in the financial markets, I can give numerous tips to help you get started and make it easier to learn day trading.
Trust me, losing thousands of dollars a day is not fun. Learn to avoid the mistakes I have made in my day trading career.
This free online guide will be invaluable for you.
Day Trading for Beginners 2019– The ultimate guide (Really!) | via @daytradingz
Proceed with the comprehensive guide Day Trading for Beginners or chose one of the related blog posts below
Day Trading For Beginners
Buying and selling financial products like stocks and futures during one single trading day is called day trading. For that reason, day trading is also called intraday-trading.
The holding period of one position during a day trade lays somewhere between a few seconds and a few hours. Open positions are being closed, at the latest, by the end of a trading day.
The aim of day trading is to make profits using the pricing momentum of an underlying asset within a short period.
Day traders make use of high intraday leverages and intraday margin. The requirements vary from day trading broker to day trading broker (in the United States, international leverages and other financial products can be higher).
Related: What is buying on margin?
Many brokerage firms allow their clients to trade with an amount being four times higher than the capital available on the trading account. Some allow even higher levers.
How to become a day trader, how to start day trading and is it possible to make a living by day trading?
In this article series, I will provide you with extensive details about day trading. You will learn more about how day trading penny stocks, stocks, currencies, options, and futures works.
You will learn day trading from the very basics up to the advanced day trading strategies and other tactics.
On top of that, you will gain the same level of understanding as the best day trading brokers and you will become aware of the potentials of day trading and the involved risks.
In short, you will learn day trading from scratch. For free, no strings attached. Okay, maybe two strings are attached.
What is day trading all about? Also, what is the difference between position trading and day trading?
Day trading is defined as a trading approach in which both the opening and closing of a position takes place during one trading session between market open and market close.
In day trading, no positions are held overnight. This means that a position will never remain open while the exchange is closed.
The concept applies to any financial product, whether it’s stocks, forex, options or futures.
There are classifications into different sub-types of day trading.
All of them belong to day trading.
The shorter the time frame becomes, the larger the positions are needed in order to achieve meaningful returns (quantity of stocks, options contracts, futures contracts, etc.).
Position trading, on the other hand, is a longer time frame trading approach.
This involves building up a position within a brokerage account, maintaining the position and closing the position over a period of a few days, months or even years.
While day traders liquidate their full position within one trading day, position traders sometimes add to their positions or sell a part of an existing position.
Learn and practice day trading as a hobby – is that possible?
Day trading is a profession and a serious day job. Anyone who day trades as a hobby, spending only a few moments with it, will sooner or later be giving away money to others.
Any job can be challenging but day trading is extremely challenging. One wrong mouse click can cost you hundreds of dollars.
The wrong tools can cause serious damage to your trading account if you don’t understand the mechanism correctly.
The fact that you often trade positions on margin and leverage can lever your risk enormously, especially if you don’t know what you are doing.
How do I know day trading is right for me?
Day trading is an investment approach used to make fast money. Instead of compounding profits over 20 or 30 years with long-term investing, day trading aims for profits within weeks or months.
While long-term investors often target returns of 7-8% p.a. on average, day traders target gains of several hundred percent per year.
So how do you know if day trading is right for you?
In most cases, one’s own mindset is the problem. It is often overlooked that a higher profit potential is also associated with an increased potential risk.
Moreover, the increased risk ultimately results in a lower success rate because many day traders burn through their account within days.
Day trading is an extraordinary challenge and is justifiably called the "king class of trading." Mistakes are not forgiven and cost money within minutes or even hours.
While it is hard to say whether day trading is right for you, I can easily say that day trading is not right for you if you:
The naked truth
That sounds harsh, I know. However, it is the truth.
If you want to belong to the 10% who are successful in day trading, then you have to be prepared.
Driving on the DAYTONA International Speedway, not knowing what you are doing, is obviously not a good idea. The same is true for day trading.
Like doctors, pilots and racecar drivers, you have to learn how.
Day trading is a profession and a vocation at the same time.
The good news - learning day trading costs time, but not necessarily money. At least for those who have patience. Patience is a virtue and is rewarded in many ways.
The biggest reward in learning day trading is that you keep your money dry until you've learned the right skills and don’t gamble away all your money before beginning.
Yes, discipline is required for hours, days and weeks. In many cases, day trading means sitting in front of your PC for a long time and waiting for the right chance without making unnecessary trades.
If not, then day trading is not for you.
Will I get rich by day trading?
You may not be pleased with the answer: It depends.
Like all other investment styles, day trading involves both opportunities and risks. Day trading is shrouded with mystique.
Many people think a lot of money can be made within a short period of time. The possibilities are often mentioned in various advertisements. If you fall for the blind left, you will lose all your money, guaranteed. Because there are also enormous risks.
First and foremost, you have to self-define "being rich." For most traders, “being rich” is synonymous with being a millionaire.
Who wouldn't like to be a millionaire?
When you begin the journey to the first million it makes a huge difference whether your starting capital is $200, $10,000, $25,000 or $500,000.
Most day traders are undercapitalized and have a disadvantage right from the get-go.
Also, undercapitalization leads to irrational decisions. The road from a few hundred dollars to the first million is long and winding.
So why not take a shortcut?
Trading on the intraday margin with high leverages during the day sounds good, right?
This is a sure way to kick yourself out of the market. For example, if you trade with a leverage of 6:1, you will lose your money six times faster if there is a loss. If a position without leverage moves $100 against you, then $600 is lost at a 6-fold leverage.
Only those who have a plan and follow it make money by day trading. The mathematical chance of becoming a millionaire in day trading is higher than winning the Powerball.
Statistics say the chances of winning the Powerball is about 175 million to 1. But what about day trading?
If 10% of all day traders are successful and only 1% of those successful day traders have become millionaires, then the chances of getting rich with day trading are much better than winning the lottery.
That’s because 1,000 to 1 is better than 175 million to 1.
However, the chance of becoming a day trading millionaire becomes lower if your equity capital is low right from the start.
One question still remains. Will you feel rich once you have made the first million?
Can anybody learn day trading and is it possible to become a good day trader?
You have to realize that day trading is equal to any other job.
- What is your current job?
- Are you good at your job?
- Are you passionate and willing to work beyond what is expected of you?
I think you get the point.
So yes, of course you can become a good day trader. Even an excellent one. If everything works out nicely you can also make a living by day trading.
Let's assume you are a surgeon.
How much time and money have you invested in your education?
Why should you need less training as a day trader?
Let’s take it a bit further.
How far will you get as a surgeon without suitable instruments?
Not far at all. The same goes for day trading. Without the right tools, you won't be able to succeed. Day trading is very much about precision.
If you receive relevant information too late or if you hesitate a moment too long, then you are in a disadvantaged position.
In my opinion, anyone can learn the basics of day trading. And yes, it takes time and money. The question of success is much more complicated.
Let us get back to the surgeon. There are differences in doctors’ reliability, success, and popularity. The range is from terrific, less competent and not so good.
While it is not that important to be popular as a day trader, it is essential to know what you are doing.
There is one significant difference between a day trader and a regular employee. A day trader has to put his own money at risk every day to make more out of it. An employee in a company will mainly invest time, not his own money. The time spent will then be outweighed by money.
Day trading, therefore, presents very extraordinary challenges.
You not only have to invest in education, but you also put your personal money at risk every day.
No other day trader will be your true friend because you are competitors.
There is no fixed monthly salary and day trading doesn’t come with any guarantees either.
Which chart type is the best? And which time frame should I trade?
A chart is a visual representation of the price development of a stock or commodity traded on the stock exchange.
There are two types of charts:
The time-dependent charts, which are displayed on the basis of a tick in minutes, hours, days, weeks, months or years.
A time-dependent chart is a representation of the price trend in which each price is plotted on a price/time scale.
The chart will develop depending on the time at which it was created and the price.
Among the best-known, time-dependent chart models are the line chart, the bar chart, and the candlestick chart.
The second display option is the time-independent chart.
Here, the time of price formation is not taken into account, but rather the degree of change in price is compared to the previous price.
The most widely-known, time-independent chart model is the point & figure chart. This includes the three-line breakthrough chart, the Renko chart, and the Kagi chart.
Consequently, it becomes clear: there is no "best" chart. Every form of presentation, like every indicator, has its strengths and limitations.
You need to know in advance what information you want to filter out of the chart in order to make investment decisions.
The chart should give you as much information as possible, but should not overload you with information, which would impair clarity.
I prefer the candlestick chart because a lot of information can be quickly captured at a glance.
When is the best time to buy stocks?
The timing aspect is fully covered in the article the best time of day to buy stocks.
There are some specific aspects you should be aware of choosing the right time of a day, week or even months when buying and selling stocks.
However, the most crucial element for day traders remains the best time of day to buy stocks.
Is fundamental analysis important for day trading?
Fundamental analysis plays a secondary role in day trading, and the same goes for high frequency trading.
This is due to the short time span the day trader has in mind for his holding period. The holding period is the difference between opening a position and closing a position.
However, a day trader should know all the critical dates in order to consider scenarios in advance and be able to trade immediately with the market reaction.
This includes, for example, important economic data or earnings announcements.
Is technical analysis important for day trading?
Technical analysis in conjunction with order flow analysis is very popular among day traders.
It should always be noted that technical analysis is only an interpretation tool.
The future cannot be determined from a chart. Predicting the weather from past data is easier than forecasting the price trend.
Nevertheless, technical analysis helps to make the right decisions. With the help of visualizations, you always know where you stand in the market.
Why does technical analysis work?
Because there are so many traders who use it.
Breakouts and breakdowns create trends and the interpretation of patterns is pretty consistent.
That's why it's so easy to predict where the market will move in the first few ticks. But...
One must also bear in mind that trading systems are specifically designed to rip-off retail traders. It is and remains a game of cat and mouse.
Anyone who assumes the technical analysis to be prognostic, and adheres to it, is acting negligently.
Appropriate risk management and 100% commitment to your trading are essential.
Those who always want to be right rarely get what they want. You have to accept that not every trade can be a profitable one.
Technical analysis helps us to make the right decisions at the right time through visualizations and fixed rules that are based on time and price.
Also, if a trade does not work out in your favor then it is even more important to be consistent, to accept the loss and move forward.
What is a day trade?
Day trading only refers to differences being related to time. When positions are held for a short period of time, this is called day trading.
The holding period may last for a few seconds up to a few hours during the same trading day.
It belongs to the main tasks of investors to operate with their client's money while some of them also invest their own money.
Two off-setting transactions in the same kind of underlying are part of every day trade on every day.
First, these transactions have to be opened and then they have to be closed – and both of these two steps at the perfect time.
These two transactions define every day trade. It doesn't matter in which trading session they are done and there is no difference when it comes to pre- or post-market trades.
Here, the universal rule is only the fact that the trades are executed on one day and that no positions are held overnight.
So, if you want to find out if Day Trading may be the perfect choice for you, continue reading the Day Trading for Beginners Online Guide.
How does day trading work for beginners?
One of the most important tasks in day trading is to count your trades completely and correctly on every day for you will never lose the overview.
You always have to keep the minimal equity level of $25,000 and the exact number of your trades on your mind.
As a day trader you buy and sell a security on every day, e.g. in foreign-exchange market (Forex), in the stock market or in other marketplaces.
For this you need excellent skills and knowledge and sufficient funds.
An adequate trading strategies are just as important if you want to gain profits from the little differences in the changing prices of solvent currencies or stocks.
The gap and go strategy is one of the most profitable day trading strategies for traders, who are looking for profits in the first few minutes of trading.
On Wall Street there is an ongoing discussion about the potential of making profits with day trading and far too often this is misunderstood.
In the media you will hear that day trading is the perfect way to get rich quickly and all easily, but this is nothing else but promotion.
Yes, there are successful day traders who make a lot of money in spite or even because of the risk.
But there are more day trading beginners who lose more and more because they are not well educated and because they don't have enough skills and knowledge to benefit from the right online platforms and tools.
How many day trades can you execute in one week?
The pattern day trader rule is important for a beginner day trader
Every brokerage firm has to mark the account of a trader as a so-called Pattern Day Trader (PDT) when it oversteps a certain number of day trades in a short time.
This happens based on the pattern day trader rule defined by the SEC.
This marking is even done all at once if a trader executes four or even more day trades in a so-called rolling five business day period.
The equity on the account is considered for certain limitations.
The request to provide a minimum account equity of $25,000 is not very popular, but only if this request will be fulfilled, the trader will be allowed to go on day trading as often as he wants.
If a trader doesn't keep this minimum balance and if he executes four trades or more in this period of time his account will be restricted from day trading.
But if the trader provides the minimum account equity of $25,000, this account may benefit from several advantages, like e.g. a higher leverage due to a better access to the margin.
The margin and the leverage belong to the essential trading tools that have to be used in a smart way.
If a day trader uses a loan (margin/day trading buying power), he may end up losing more money than he invested in the beginning.
Which online broker is the best possible choice for day trading beginners?
The most important trade you will ever make is the choice of your broker. Even within the best brokerage account traders deposit all the money needed to day trade.
So, it is hard to believe that many traders still don't gather all possible information about their broker before a problem will occur.
For example, problems may occur when a trader has chosen a scam broker. Many of these scam brokers operate from third-world countries, but of course they may be found everywhere.
If a trader has sent money to one of these scam brokers, it will be more than difficult or even impossible for him to get his money back – his profits and even his deposit to start with.
Usually, all of these scam brokers are not in the business for too long, and luckily, they are mentioned in forum complaints.
That's why it is a good advice first to search for all kinds of information about the best online brokers and platforms for day trading before you will sign in.
Slow quotes or a broker trading against you are a more tricky problem. It is highly important that you choose a direct access broker that will send your order directly to the exchange.
Every smallest part of one single second may be essential in day trading. That's why your order has to get to the exchange in the very moment when you have placed it.
If you won't be satisfied with the service of your broker in this, another one may probably be a better alternative.
The best possible software is just as important. All the same how great your broker may ever be, if the software they provide doesn't meet the highest standards, this broker will be the wrong choice.
Before you will make your final decision, collect all possible information that you can get about a broker before you will send money there.
One of the best ways to check a broker out is to use their demo account to find out if it really meets your needs and to test their customer service. This will help you for sure to get a useful personal impression.
On this website you will find some additional advice about how to check up your potential broker before you may make the wrong choice and some top broker reviews.
When you have signed up, your broker will execute your trades and you will have to pay a certain fee or commission for this.
Every day trader is looking for the lowest possible fees for too high costs won't ruin his profits and make all his efforts useless.
However, please, keep in mind that the broker with the lowest charges is not automatically the very best.
A high quality support being there for you whenever you need it is also highly important.
If a broker's service is great enough to help you to save a lot of money when you deal with a computer meltdown and when you can't close your trades at the right time will surely be worth it to pay a few cents more for this service.
How do you start with day trading as a beginner?
It is not necessary to invest a lot in an expensive kind of education.
Only for job interviews in finance it is often useful to have the right degree from a university with a good reputation, but you don't need any certificate from an Ivy League school when you want to start with day trading.
In fact, there are no formal requirements at all, but of course it may be useful to take courses in technical analysis and to improve your skills in computerized trading before you start seriously. A good trading computer will be benificial.
Just like in everything, it helps a lot if you know exactly what you are doing.
At least, you should study all information that you can find online before you step seriously into this business.
For this they use historical price charts and demo trading while the historical charts may even be the better way to see how this strategy worked under different conditions.
So, before using a certain strategy as a day trading beginner, you have to find out in which cases it may be helpful to use it and in which cases you better avoid using it before you will risk your real money.
The importance of knowing your order types
All day traders' profits and losses depend on the orders they make.
Without paying attention to the prices, it is essential that you know your order types for you will be able to get in and out at a set price (for limit orders) and to handle in and out in a hurry (for market orders).
For going long and short, you also need an at least basic knowledge of how to execute stop loss orders and profit targets while you should be well familiar with placing orders automatically.
Without the best possible knowledge about your order types you will lose a lot of money due to slow and stupid decisions.
You should also be sure that it will never happen that by mistake you will send out the wrong order.
If you may ever do this by accident, it will be in the market and you will start paying for this immediately.
In this case you will get angry with yourself and you will be stressed while you try to get out of the wrong trade and to place the right one.
Watching your loss with the trade you placed by mistake will even lead to panic and in the worst scenario, you may end up placing the wrong order once again instead of getting out of it.
This way you will lose more and more.
If you act under stress or even in panic, things may get out of your control all at once. So, you see, you should better know your order types exactly.
Money Management is the key
It is also a common mistake that beginners in the business use to make when they start with an incomplete risk management strategy or even with no risk management at all.
Far too often, new traders tend to being too self-assured regarding their personal skills and too optimistic while they forget taking the most important risk management steps.
For an, at least, basic risk management strategy, two essential steps are needed.
I would say the most important aspect is risk management. Without risk management a trader will never survive.
Joss Cameron - Founder Warrior Trading
You have to be sure to control your risk with every single trade you make. This is only possible if you place a stop loss on every trade.
It is a useful rule for beginners to make sure that your risk on every trade should never be higher than one percent of your account balance.
You better pay attention to the difference between your entry price and the stop loss price.
When you multiply this number by your position size, like e.g. the number of Forex lots, shares or futures contracts, the result will show you the risk we are talking about.
In any case, it helps a lot to control your risk on every trade, but it is just as important that you know exactly what you are doing.
If not, also a perfect risk of only one percent for every trade will not save you from big losses.
If you execute many trades on every day and if you lose the biggest part of them, all suddenly you may be down ten percent or even more.
That's why it is highly important to define your personal stop loss limit for every single day.
If you trade this way, you will be able to compensate a day of losses with a day of good profits.
Artificial intelligence stock trading software is beneficial once you start day trading.
What is a good trading strategy for beginners?
Professional day traders use to test every trading strategy under different conditions on the market to find the strategy's advantages and disadvantages before they may use it in their real trades.
Watch the market more than well by using chart patterns for you will be able to tell how your strategy may perform under certain conditions.
Before using a strategy for a first real trade, you have to be sure if it will really be helpful for this certain trade.
So, you better don't rush. The market will not disappear. It will surely be worth it to do some research, to test all possibilities and to improve your knowledge and skills before you will risk your money.
All kinds of experiments will lead to serious losses. Whatever you want to do, get well informed first!
Day Trading Indicators
Which one is the best indicator for technical analysis?
To become a successful trader, it is not enough to be familiar with all kinds of stocks and to have a good basic knowledge.
In addition to this, you have to know all helpful tools to understand price movements and chart patterns and you have to learn all about technical analysis.
Some examples for essential indicators are volatility, resistance and support levels, price oscillators, the moving average convergence/divergence (MACD), CCI, daily volume and the Bollinger Bands®.
And you will still only have gained the minimum of the essential knowledge you need to be able to find your own trading style when you will have learned well how to use these indicators.
There are countless numbers of books about this business and just as many online or real classes. Make the most out of all these offers!
So, do your homework first! The market will always be there and you should only enter it at the right time when you will have started to place successful trades with virtual money.
However, even at this time it will still be better to start with small amounts to risk.
There is a balance between the chances to gain money and the risk to lose money with day trading.
Every way of trading is connected with risks. Make always sure only to risk the money you can afford to lose!
And never forget that day trading is no gambling! As soon as you start viewing and handling it like a casino game, you will lose much and fast.
Buying and selling of stocks and other kinds of investments
It is the daily business of day traders to buy and to sell stocks and other kinds of investments. The result of the daily efforts will only be clear in the end of each day.
Only in the case of swing trades certain positions may be held overnight or even for a few days applying swing trading strategies.
Every day trader depends on a fast internet connection and a professional trading platform supplying him with the necessary software.
Of course there is also the opportunity to create a trading platform on your own, but this needs a lot of advanced skills and efforts and so, the majority of traders prefer using the offers of specialized companies or brokerages.
Beside this, a competitive, fast computer with a minimum of two screens or even better with more screens than just two is essential in this business.
Day trading is impossible when you are not able to watch all necessary technical indicators and charts at the same time to make well-informed decisions about buying or selling.
It is also highly important to make the best possible choice regarding the trading platform you will use.
Make sure that it provides you with all kinds of real-time data and news that you need to create helpful charts and time frames to elaborate the optimal trading strategies for yourself.
Day trading for beginners - A hobby or job?
Only a few private investors are able to earn their living with day trading and it will take a lot of time until you may ever reach this.
It is also important to focus on your personal attitude. A positive mental attitude is needed for being successful in this business.
It is all up to you as a day trading beginner!
Never blame others if you won't be successful! Day traders are self-employed and fully responsible for everything they do.
Be happy and celebrate when you gain profits and learn from your mistakes and go on studying if you fail!
Take always one step at a time and be patient if some day you really want to belong to the 10% of day traders who are making money!
The risks of being a day trader
There is a permanent risk of losing money
The U.S. Securities and Exchange Commission has published a report called "Day Trading: Your Dollars at Risk".
In this, every trader can find the statement that most of the professional traders have to face serious losses in the beginning while many of them never reach the point to gain significant profits.
In addition to this, the SEC warns day traders, giving them the advice only to risk the amount of money that won't hurt them too bad in the case of a possible loss.
In spite of all this, unfortunately, there are still too many day traders who take a loan from their family or others or who execute margined trades and who end up losing money they never really had.
These cases lead to a sudden end of their career as professional day traders or they even puts them in significant personal debts.
The costs to start in this business and the continual costs are high
Especially in the beginning, day traders have to try to survive in the hard competition with professional traders or hedge funds with much more experience who are often able to invest millions to their advantage.
To gain the urgently needed knowledge and experience to compete, beginners have to pay a lot for highly advanced and fast computers.
Also for a subscription to the best possible trading platform, for helpful software and tools and for many other essential things.
Afterwards the costs for commissions, live price quotes and other indispensable tools will have to be paid continuously – and they will even rise with the number of executed trades.
Yes, the advantages of this have been mentioned above, but it would be a big mistake to ignore the disadvantages that go along with them.
Every day trader who decides becoming his own boss has to give up the safety of a permanent job and a reliable paycheck in every month.
When he starts being self-employed, every day trader only depends on himself and he is fully responsible for making the money he needs for paying his bills and for being able to finance the lifestyle he is used to or he wants to reach.
And this is never secured.
A lot of stress and a possible burnout
Day trading is a hectic and tiring business as the traders have to watch several screens at the same time and to act more than fast on every day if they want to be successful in this business.
People who have to deal with so much stress and who need to be completely concentrated all the time often tend to ending up with a burnout.
Day Trading for Beginners - My Summary
There are estimates claiming that only about 10% of all day traders are truly successful while the remaining 90% have to deal with losses.
If you consider this, you may ask yourself how somebody may still expect to make money in this business.
But professional education, advanced skills, a permanent discipline and self-control, a detailed, well informed research and the ability to learn from mistakes of the past to lose less in the future may really make a big difference.
In day trading you have to be able to ignore your emotions and to make your decisions even faster than in seconds.
And all of your decisions have to be based on all kinds of information that you could get while all this information is never complete and while it may always change just as fast as you have to act.
Well, of course it is easy to tell you this and it is much harder really to get all this done.
It is just as important and not easy at all not to place too many trades on every day to be successful and not to over-trade ending up paying far too much commissions.
But if you use all possible efforts to get the most important knowledge and if you are realistic regarding your goals, day trading may bring you profits and it may even be fun.
It is a good start to choose a market that you are interested in and that doesn't exceed your budget. At the same time you need the essential software and equipment.
Limit your time of trading to a certain, chosen time of the day during the openings and closings of the market and never trade at another time! Check and manage your risk for every trade on every day!
Exercise with different kinds of strategies as much and as often as you ever can before you start investing for real!
It isn't necessary to know absolutely everything about day trading to be successful, but you have to find the one strategy that fits you best and that helps you to gain profits. Stock chat rooms can be helpful at the beginning.
Hold on to this strategy and make money with it before you start trying to learn others!
Be fully concentrated when you trade and reflect every week! It may be helpful to take screenshots of the trades you made as they will be your personal historic record.
This will show you the results of your decisions under realistic conditions and this will help you much better to review your activities in a critical way than even the best written trading journal ever could.
Find the best possible online brokers for day trading and the best possible tools and educators! Take things slowly, be careful and start with a demo account!
For as long as you will lose money with your demo account, you would surely not gain any profits by using real money.
Your Questions About Day Trading
If you have any question, please do not hesitate to contact me by using the contact form within the about section. I will include the answers within this Guide "Day Trading for Beginners".
Popular Website Categories