Day trading has become popular, especially among stay-at-home people. Many are becoming day traders because of easy access to a high-speed Internet connection and apps like Robinhood.
The web has provided lots of chances for many people, especially those who are looking for "be my own boss" stay-at-home money-making opportunities.
This may be attributed to a lack of jobs as well as stagnant salaries and wages. Despite this, becoming a day trader is a step by step process that involves learning, knowledge acquisition, intelligence, patience, and other attributes.
Day traders are involved in short-term buying and selling of securities; they don't hold them past the end of the trading day. They make money by taking advantage of the market momentum and short-term price fluctuations.
It’s worth being aware that day trading is not an easy venture. Day traders, especially those seeking to trade full-time rather than as a hobby, should expect to work long hours with few breaks from work.
They need to have high levels of commitment and good risk-taking abilities. However, learning how to trade is a straightforward process, especially if you follow the steps below.
Save Cash for Training and Investing
As said earlier, to become a day trader, you need to learn. This calls for attending classes, either online or onsite. Today, the world is digitized, which means more resources and educational courses can be found online.
In the past, it was difficult to find online courses, chat rooms, and even social media platforms where you would meet like-minded traders and get to learn the ropes of trading. This meant that one had to learn the hard way—training yourself.
However, even in 2019, where online educational resources are abundant, it’s quite challenging to get free ones that are built well enough to prepare you for becoming a successful day trader.
To learn about trading stocks, it’s wise to invest in your education. Save some cash for your training (between $2,000 to $10,000) and your trading account (around $5,000).
Also, be aware that per Financial Industry Regulatory Authority (FINRA) regulations, you are required to maintain a minimum equity of $25,000.
If you are looking for a reputable day trading training resource why not start with Warrior Trading? Not only will you get to learn from experienced traders, but you will have access to lots of resources like chat rooms.
Learn from a Successful Trader
During the tech bubble, day traders made easy money buying and selling Internet stocks. Many of these traders did not need prior knowledge about stock trading. All they had to do was ride the tidal wave earning lots of profits in the end.
When the tech bubble deflated and the easy money dried up, the majority of traders left looking for other jobs.
Why? They suddenly learned that day trading is not a game of chance, but one that needs education and skills to be successful.
Although the world is currently in the digital era, it’s quite easy to meet unscrupulous individuals who will claim to be “professional traders,” yet they are not. They will dupe you into joining their “free” class with a promise of free eBooks or something else.
To become a professional day trader, you have to learn from a successful trader who has a track record of making money by day trading.
And while it's possible to day trade part-time, you must be able to trade while the market is open.
For beginners, it can be quite confusing to know where to start, especially when it comes to finding a successful trader. The first place you can start with is an established training platform like Warrior Trading. Other platforms to check out include StockTwits or eToro.
TIP: Consider a service like Investors Underground to consistently make better, more informed trading decisions.
One of the most important things that you need to learn is how to recognize stock market patterns. You will see these patterns occurring again and again.
While identifying these patterns is no guarantee of success, it can be a big help when day trading.
Design a Trading Strategy
By now, you already know that trading requires a sufficient amount of money. This will allow you to take advantage of leveraging large positions.
One thing you need to remember is that when you begin day trading, your investments aren't likely to bring you considerable profits. Experienced traders have learned to make money on a relatively small price movement by going long or short.
Before you make a single trade, you should first develop a trading plan.
As said earlier, day trading is not a quick-get-rich-scheme; you need to implement various strategies to make profits. It can generate a return more quickly than mutual funds and ETFs, but it still takes time.
These strategies will help you to determine the entry and exit points. Experienced traders are known to develop strategies which they stick to once they become comfortable with them.
It is common to find successful traders trading with one or two stocks during intraday trading. Others will only trade a few of their favorites.
The reason why experienced traders do this is to learn how each stock fairs under different conditions. They also get to learn how movement is affected by key makers in the markets.
As a beginner, it is essential to take the time to come up with sound strategies and learn how they work. Do not change strategies rapidly just because today it made money, and the next day, it did not.
Be patient and make sure your plan includes risk and trade management. For example, you can create stop-loss orders to help minimize losing trades.
It’s also important to recognize that strategies should be based on knowledge. This is why technical analysis is such an important part of day trading.
It’s essential to know about the company you are investing in and be aware of any news about them. You also need to know how to read a stock chart as part of your analysis.
Practice Trading on a Simulator
It is common for new traders to be anxious to try out their newly learned trading skills in real-money trading scenarios. What you need to remember is that in the real world, you may end up losing all your money just because you lacked patience, skills, and knowledge.
Analogical with Modest Money's advice for aspiring foreign exchange (Forex) traders, it is wise to take the time and set up an account on a trading simulator before you start trading with real money.
Trading simulators are usually offered for free and you can find them standalone or as part of trading platforms. The best news is that you don’t have to risk your capital.
Virtual money is always available, allowing you to come up with numerous strategies, implement them, and watch how they perform. Trading simulators let you practice with real-time data and charting, reproducing the same experience provided by real market conditions.
Furthermore, they'll usually have all the important indicators you need, like moving averages and VWAP. This makes trading simulators a great way to understand how real trading activity works without risking real money.
What can you learn from trading simulators? First and foremost, it allows you to become familiar with the trading software interface. Next, it will enable you to learn the basics—its features and how to navigate the tools.
You can learn about portfolio, stock research, watch list, ranking, and other technical indicators.
Overall, you'll learn hands-on how the financial markets work and get to build a money management system that works for you without investing real capital. So, don’t jump this critical step. While it’s like using training wheels, it helps to prepare you for real-world trading.
Start Live Trading With Small Size Investments
Now that you are done with training, it’s time to take off the training wheels and start trading in the real world. Do you remember the $5,000 savings?
Well, this will be your starting capital for your real brokerage account.
I know you are very anxious to start trading but to avoid losing all this money, it’s a good idea to start with a low trading volume. This is an effective means of practicing risk management when you start trading.
The best option for you is swing trading. What is this? Swing trading is a practice where you hold positions for several days up to a few weeks.
It’s a fundamental trading concept that sits between day trading and trend trading.
As a swing trader, you will get to hold a stock for a longer time than if you were day trading, which will give you a chance to watch how the market fluctuates throughout several sessions. While you may not make a lot of money as a beginner, you will not be exposed to such high volatility as with day trading.
It is common for beginners to expect to make much money right from the start, which means they may engage in margin trading. Margin trading refers to trading with money borrowed from the stockbroker and held in a margin account.
Note that if you are very active with a margin account (over four day-trades in five business days which make more than 6% of your margin account's trades), you will be designated as a pattern day trader and be a subject to some additional regulations.
The Securities Exchange Commission (SEC) provides more information on this page.
However, using margin accounts means investing money that you do not own which is a terrible way to start your new venture. This is because margin trading increases your risk. To be on the safe side, start with a small size investment until you build a consistent success rate.
Let’s face it, day trading is fun, but it’s risky business too. Many traders fail within the first three months. To be successful, save cash for investing and for your education.
This should be followed by seeking training from a professional broker, coming up with sound strategies, practicing on a trading simulator and finally trading live with small size investments. Doing these things will surely set you on the right path to becoming a successful day trader.