Beginners Guide to Day Trading: All You Need to Know

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People strive hard to meet their every day financial needs and to save a huge sum for their future. Investing money in profitable platforms is one of the best ways to grow the hard-earned money. However, with the significant growth of Trading, more people prefer to be traders over investors.

Though, trading and investing sounds similar, they are actually two different genres in the equity market. Investing is a long-term thing, where you build your wealth gradually with building portfolios of stocks, currencies, ETFs, bonds and hold it for a greater time period. You can hold investments for decades and enjoy the perks of interest, stock splits, and dividends.

On the other hand, trading involves frequent buying and selling of stocks and commodities, and in recent times – of cryptocurrencies, with an objective of generating faster returns. It is an active style of participating in the market.

Instead of waiting to acquire profit from the long term trends, traders look for the short term price movements in order to reap benefits during both falling and rising markets. Being a trader means, you can be your own boss, work from home and get the opportunity to attain unlimited income potential.

Trading is exciting, making your adrenal rush and give a sense of involvement. There are 5 different types of trading styles available, day trading being one of the most popular types.

What is Day Trading?

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Day trading is an act of buying and selling one or more financial instruments like stocks, currencies within a single trading day. No position is held overnight. Day trading, also known as Intra trading is a lucrative proposition, as long as you perform it in the right way.

Day trading is most common in FOREX and stock markets. With the rise of cryptocurrencies and their trading, day trading has turned into the preferred method for short term profits with these assets as well… The day traders make use of a high amount of leverage to capitalize on small price fluctuations in the highly liquid stocks and commodities market.

The day traders require to be well funded and typically educated enough as it involves risks. In-depth understanding of market and knowledge about the various trading strategies are prerequisites to become a successful day trader.

Everything You Need to Start Day Trading

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Many people think that the Day trading set up needs a hefty investment of capital, which is really not the case. Here comes the list of what you actually need, to day trade.

  • Technology: You do not need a supercomputer with dozens of monitors to trade. A simple desktop or a laptop off the shelf will suffice. Several trading software is there to perform trading online efficiently. Talk with your broker and make sure that your system has sufficient power to support the trading software.
  • Internet connection: High-speed internet connection is imperative to get the orders processed in a timely manner for a rapidly moving market. Sporadic internet connection is not feasible for day trading.
  • Trading platform: Trading software is inevitable in day trading. Don’t fall prey to the bogus bots, which humongous returns. Consult experts, read online reviews and decide on the software to be used that suits your requirements. The trading platform should be user-friendly and accurate in detecting the price movements. You can go for web-based software and also downloaded versions that are compatible with your desktop.
  • Direct access trading brokerage: A broker is indispensable to perform any style of trading as they facilitate your trade. Think twice before choosing your broker. Direct access to trading brokers routes your orders rapidly to the exchange, without the interference of middlemen, who cost you more. They have a concrete commission structure and offer you more advanced trading software.

Best Time to Day Trade

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The most common question asked by the newbies is, ‘When is the right time to day trade?’. As a day trader, you want the market to be volatile with prices moving up and down. If you intend to buy and sell stocks, the best time to trade would be the first two hours of the stock market open, 9:30 am to 12:30 am EST.

If you wish to day trade futures, around the open is a great time to start with. Even though the FOREX market is open all round the clock, you can have the most profitable day trading opportunities from 8:30 am to 11:00 am. Henceforth, you can conclude that the morning session provides the best day trading possibilities.

Being a day trader, you don’t require to trade all through the day. 3-4 hours of day trading at the right time help you achieve consistency.

Strategies of Day Trading:

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Day trading is alluring in a way that skilled day traders can even make six figures working just 3-4 hours a day. It is necessary to adopt a strategy to become successful in day trading. The following are the most popular day trading strategies embraced by the traders.

  • Momentum Trading: The traders adopting the momentum strategy jump on a stock whose value is surging up. Stock movement is around 20-30% almost every day. Also, remember due to the reduced number of outstanding shares, small stocks can be traded fast.
  • Scalping strategy: Scalping is one of the best trading strategies for confident day traders who can make a quick decision with ease. The scalpers set buy and sell target and stick on to the predetermined levels, no matter what.
  • Pullback trading strategy: It involves looking for stocks and ETFs with a fixed trend. If the established trend is upward, the pullback or downward price movement can be an entry point for the trader to buy.
  • News trading: The local and global news influence the price movements of the stocks. For instance, the FDA’s approval of a new drug can cause the stock price to take off. Thus, if glad news is out, you can buy stocks outright and sell them after the price rises. If bad news hits the market, it is wise to short the stock during the trading day.

Perks of Day Trading:

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The exciting aspects of Day trading include placing trade after trade all through the day, carefully monitoring the market movements and making fast money. The benefits of day trading over other trading styles are as follows:

  1. The biggest advantage of carrying out day trading is that you have zero overnight risks. In intraday trading, you close your position before the end of the trading day because of which your net gain is not affected by unexpected dramatic moves that take place during none trading hours. The overnight tragedies of the local and global markets have no effect on your profitability.
  2. No matter whether the market is on a rise or a fall, day traders can take benefit out of it. They can do short selling to attain profit from a falling stock which is not the case with long term investors.
  3. Day trading provides greater leverage, which means you can perform trade with more amount than in your trading account. For instance, if you have $1000 in your account, you can trade with up to $2000, though it varies from broker to broker. The increased leverage multiplies your profit.
  4. Low brokerage commission is an attractive perk of day trading.
  5. In day trading, you square off all your positions prior to the end of the day. So, you start the day with cash in hand and end the day with the same cash plus profits. This means that you can withdraw money from your trading account any time, in case of unexpected events.
  6. Day traders can do more trade. Also, you can make a quick exit on loss or profit at any time during the course of the trading day.
  7. Day trading provides a greater opportunity to learn, experiment and implement several trading techniques in a shorter span of time.
  8. Day trading provides consistent returns as you hold the position only for a short duration. The positions will not have a huge impact on your overall portfolio.

Risks Associated with Day Trading:

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Like the two sides of a coin, Day trading too has got two sides: benefits and potential risks. However, the advantages outweigh the risk factors, which makes day trading many traders’ favorite. You should be aware of the following limitations and challenges you need to encounter to become a successful day trader.

  • Day trading is not for everyone. It is fast-paced and you should be skillful enough to analyze the market and make prompt decisions. If you are not so advanced you can try trading cryptocurrencies with a robot like a Bitcoin Code.
  • Day trading can be nerve-wracking and more emotional than other types of trading. You can see your loss and profit statements moving up and down quickly. Also, time limitation can be pressurizing.
  • The use of leverage can lead to a potential capital loss if the market conditions are unfavorable.

Final Words

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Choose the market which you are interested in and afford to trade. Opt for the best strategy that suits your requirements and personality. Keep yourself updated, hone your skills and don’t let your emotions influence the trading decisions you make. Most importantly, if you wish to day trade, invest the capital which you can afford to lose.

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