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. Learn to avoid the mistakes I have made in my career.
What Is Day Trading
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. A day trader aims to make profits using the pricing momentum of an underlying asset within a short period.
How to Start Day Trading
So how to get into day trading? Let's get this straight, opening an account, and start for fun is not the best way. Like in any other profession, you need proper education first, and it can take a few months or even years to become profitable.
But how to learn day trading? A trading course is an excellent starting point to build your knowledge based on it. But be aware, day trading is time-intensive, and it requires a lot of on-screen time to learn how the markets work.
The best way to start day trading is by simulating it first, which leads us to the next question.
How to Practice Day Trading?
There are free day trading guides, day trading tips, and day trading strategies out there. The gap and go strategy is my favorite one. And honestly, you will need a mix of everything to practice it. If you are a day trading beginner, then you need to understand the basic terms first.
As being said, trading courses are a good starting point for day traders. To learn to day trade, you need a paper trading platform to test your day trading strategy under real stock market conditions. The stock market is the most popular market for day traders.
Day trading penny stocks and day trading low float stocks are two popular techniques. But you can also trade the forex market, day trading futures, or options strategies. Alternatively, you can also try some swing trading strategies.
Strategies for stock trading and other assets can be tested with free paper trading accounts. Day trading books can be helpful if you prefer this type of learning. You should also learn what is buying on margin and how to use margin in a beneficial way to leverage your P&L.
Advanced Trading Platforms and Tools
In the beginning, it is essential to focus on costs. Keep them as low as possible. Free tools exist to give you a better understanding of the stock market and the day trading strategies. You learn how to buy a stock, and how to sell it. You learn how to short stocks and how to secure your investment.
Stock screeners and stock scanners will probably become your best friend as a day trader. That's because timing is everything, and being late is not an excellent characteristic of a successful day trader. A stock screener will help you to find the best entries fast.
How Much Can You Make Day Trading?
This is a popular question, but there is no exact math behind it. The fact that most traders fail is not one of those big day trading secrets. The SEC came up with some regulations which require you to have at least $25,000 in your brokerage account to day trade frequently on the largest stock exchanges in the world.
It is essential to understand that you already need a reasonable amount of money to start day trading online. And yes, you can become rich. 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 traders are undercapitalized and have a disadvantage right from the get-go. Undercapitalization often leads to attempts to bypassing the Pattern Day Trader Rule.
That approach undermines the protection mechanism that the SEC has created. Also, undercapitalization leads to irrational decisions. The road from a few hundred dollars to the first million is long and winding. Some traders tend to use a pattern day trader workaround instead.
Day Trading Millionaires
There are many self-proclaimed trading millionaires out there. It is upon your responsibility to differentiate between marketing tactics and real results. Before you start a trading course, make sure to evaluate if the shown profits are really made. In at least 80% of performance results are only marketing tactics. Make sure to take the right path.
Day Trading Strategies
Trading educators and trading tools will help you to understand the complexity. But they are not the guarantee for any long term profits. You have to find your day trading strategy for stock trading or the forex market. Even if you are looking for options trading strategies, then you need to evaluate the best one for yourself.
It depends on your personality, your time, your emotional control, and your personal preferences, what kind of strategies fit the best. You have to learn how to handle losses, but also how to learn profits.
Most of the time, the control over your emotions will be decisive if you become profitable in the long run, or not.
Once you are profitable trading the financial markets on paper, then you need a broker and a trading platform. Make sure to go with one of the market leaders and also make sure to keep the expenses small. In the past, you had to pay up to $20 per trade to your broker in commissions.
These days, most online brokers a commission-free trading account. TD Ameritrade is excellent to start trading stocks, TastyWorks is a good broker for day trading options, and a direct access broker like Interactive Brokers is suitable for high frequency trading.
Day Trading for Beginners Conclusion
Do you merely need a trading platform to become a successful day trader? Not, not at all. Beginners need to learn the basics first. Only if you become successful in your paper trading account or trading simulator, then a real brokerage account is a good idea to execute your trades and strategies.
There are many tips and strategies out there for day traders. In fact, it needs a lot of on-screen experience, and I hope that this little day trading guide helps aspiring day traders. Day trading is one of the most profitable investment strategies out there.
Frequently Asked Questions
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 shares. However, the most crucial element remains the best time of day to buy stocks.
Is Fundamental Analysis Important for Day Trading?
Fundamental analysis plays a secondary role, and the same goes for high-frequency trading. This is due to the short holding period. The holding period is the difference between opening a position and closing a position. Critical dates should be considered in advance and be able to trade immediately with the market reaction. This includes, for example, critical economic data or earnings announcements.
Is Technical Analysis Important for Day Trading?
Technical analysis, in conjunction with order flow analysis, is trendy 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.
What Is the Best Day Trading Tool?
It is essential to choose one of the leaders in the market when you are searching for the best possible trading tools, trading educators, or online broker. Compared with the smaller competitors, these well-known and experienced providers may offer you the most extensive support.
In addition to this, they know all about the legal regulations of large and sometimes even of listed companies to protect their customers' money much better than offshore providers ever could.
For me, Trade Ideas is the best trading tool ever. Their artificial intelligence-based algorithms ensure that only high-quality trading setups are alerted.
- Powered by Artificial Intelligence Engine
- 100+ Trading Strategies, Outperformed U.S. Markets in CY 2019
- Trading Chat Room with 400+ Traders online
- Automated Trading via Brokerage Plus API
How Do I Know Day Trading Is Right for Me?
Instead of compounding profits over 20 or 30 years with long-term investing, you aim to profit within minutes. While long-term investors often target returns of 7-8% p.a. on average, day traders target gains of several hundred percents per year.
In most cases, one's mindset is the biggest challenge. It is often overlooked that 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. This way of speculative investing is not right for you if you:
- Aim for quick profits without awareness of the high risk
- Have little equity capital
- Are not willing to learn first
- Think that this is a one-way street to your first million
- Can't lose
- Are slow in trading platform handling
- Are unwilling to change your broker to reduce fees, get better order fills and connect tools
- Are not willing to spend at least $100 to $300 per month on trading tools that enable you to be successful
- Expect too much
- Are not disciplined
- Tend to be greedy
- Don't have the knowledge/experience to day trade
- Don't have the motivation to succeed
That sounds harsh, I know. However, it is the truth. If you want to belong to the 10% who are successful, then you have to be prepared. Driving on the DAYTONA International Speedway, not knowing what you are doing, is 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 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 is that you keep your money dry until you've learned the right skills and don't gamble away all your money before beginning.
Discipline is required for hours, days, and weeks. That means sitting in front of your PC for a long time and waiting for the right chance without making unnecessary trades.
- Are you ready, and do you have the time, to sit in front of your trading computer for hours? Maybe you have the motivation to learn how to build a day trading computer?
- Are you ready to invest hour after hour in educating yourself without even making a trade with a real money account?
- Do you have a strong motivation to win, and are you willing to do anything necessary to be successful?
If not, then this trading-style is not for you.
Can Anyone Learn Day Trading?
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 successful. If everything works out nicely, you can also make a living from it. Let's assume you are a surgeon.
How much time and money have you invested in your education? A lot! 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 traders. 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. 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, prosperity, and popularity. The range is 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.
You not only have to invest in education, but you also put your money at risk every day. No other 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 and Time Frame Is the Best?
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 based on 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.
How Much Do You Need for Day Trading?
You need at least $25,000 in your account to day trade actively. Based on the SEC rules, you can make a maximum of 3 day trades within 5 business days if you have less than $25,000 in your account.
Can You Day Trade with 1000 Dollars?
In the United States, you can execute up to three day trades per week with less than $25,000 of capital in your brokerage account. You can day trade with 1000 dollars, but you are limited in terms of the trade frequency.
Is Day Trading Illegal?
Day trading is 100% legit and not illegal. Various regulations exist to protect investors. In some countries, it is prohibited to trade specific asset classes. In the United States, all common assets like stocks, options, and futures are entirely legit.
Which Trading Is Best for Beginners?
Beginners should start slowly in any investment style. Typically they begin with securities like stocks and limit their losses by trading shares with small risk and execute low-risk strategies on the markets. Trades lead to positions, and depending on your level of experience, your entry and exit result in profits and losses. It is essential to find the right balance and use a suitable software moving forward.
About the Author
Alexander is an investor, trader, and founder of daytradingz.com. After devoting many years to educating himself on powerful day trading techniques and effective investment styles, he started trading and investing more actively. In the past 20 years, he has executed thousands of trades. In 2015, he began writing articles about trading, investing, and personal finance. He is very passionate about sharing his knowledge and strives for success in himself and others. Alexander has been featured on Benzinga, Rockstar Finance, and ESI Money.