How To Successfully Day Trade – There was a time many years ago when the only people who could actively trade in the stock market were those who worked for large financial institutions, trading companies and trading houses. The advent of online business, along with the instant spread of news, has upped the game – or rather the business space. The easy-to-use trading tools and 0% commissions of services like Robinhood, TD Ameritrade, and Charles Schwab have made it easier than ever for retail investors to try trading like the pros.
Day trading can turn into a profitable career (as long as you do it right). But it can be a challenge for beginners—especially those who don’t have a well-planned strategy. And know that even the most experienced day traders can run into difficult situations and experience losses.
How To Successfully Day Trade
Day trading means buying and selling a certain level of securities within a day or even within a few seconds. It has nothing to do with investing in the traditional sense. You take advantage of the inevitable up-and-down price movements that occur during a trading session.
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Day traders are usually well trained in the ins and outs of trading and are usually well funded. Many of them add an additional level of risk by using leverage to increase the size of their holdings.
Day traders are attuned to events that cause short-term market movements. Trading based on news is a popular strategy. Scheduled releases such as economic statistics, corporate earnings or interest rate announcements are subject to market expectations and market science. That is, markets react when those expectations are not met or exceeded—often with sudden, significant moves that can be very beneficial to day traders.
The profit potential of day trading is a subject of constant debate on Wall Street. Online trading scams have spread by word of mouth promising huge returns in a short period of time.
Many professional money managers and financial advisors shy away from day trading. They argue that in many cases the reward does not justify the risk. Furthermore, many economists and financial practitioners argue that active trading strategies of any kind tend to outperform more passive index strategies over time, even after fees and taxes are taken into account.
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Earning from day trading is possible, but the success rate is low because it is risky and requires considerable skill. And don’t underestimate the role of luck and good timing. Bad luck can drown even the most experienced day trader.
Professional day traders—those who trade for a living, not as a hobby—are often well established in the field. Often they also have knowledge of the market. Here are some basic things you need to be a successful day trader.
Individuals who try to day trade without understanding the fundamentals of the market often lose money. A working knowledge of technical analysis and chart reading is a good start. But without a deep understanding of the market and its unique risks, charts can be deceiving.
Smart day traders only take risks they can afford to lose. This protects them from financial ruin and helps remove emotion from their business decisions.
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It often takes a large amount of capital to effectively capitalize on intraday price movements, which can be in pennies or fractions of a hundred.
Adequate capital is required for day traders who choose to use leverage in margin accounts. Volatile market changes can cause large margin requirements in the short term.
The trader must have an advantage over the rest of the market. Day traders use a variety of strategies, including swing trading, arbitrage, and news trading. They repeat these strategies until they make steady profits and limit their losses.
There are also some basic rules of day trading that are wise to follow: Choose your trading decisions wisely. Plan your entry and exit points in advance and stick to the plan. Identify patterns in the business activities of your choice in advance.
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Many day traders end up losing money because they fail to make trades that meet their criteria. As the saying goes, “Plan the business and trade the plan.” Success is not possible without discipline.
To make money, day traders rely heavily on market volatility. A day trader can find an attractive market if it moves a lot during the day. This can happen for a number of different reasons, including earnings reports, investor sentiment, or even general economic or corporate news.
Day traders also like highly liquid stocks because it gives them the ability to change positions without changing the stock price. If the stock price is higher, traders can take a long position. If the price falls, the trader may decide to sell short so that he can profit when the price falls.
Most day traders trade for trading services for big players such as hedge funds and asset trading desks of banks and financial institutions. These traders benefit by having access to resources such as direct peer connections, a trading desk, large amounts of capital and leverage, and expensive analytical software.
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These traders are looking for easy money from arbitrage opportunities and news. Their resources allow them to spend money on these risky day trades before individual traders can react.
Individual traders often manage other people’s money or simply trade their own. Few of them have access to a trading desk, but they often have strong ties to the broker because of the large amount they spend on commissions and access to other resources.
However, the limited scope of these resources prevents them from competing directly with institutional day traders. Instead, they are forced to take more risks. Individual traders trade daily using technical analysis and swing trading—combined with some leverage—to make accurate profits on small price changes in highly liquid markets.
Day trading requires access to some of the most complex financial services and facilities on the market. Ordinary day traders need all of the following:
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A trading or trading desk allows these traders to execute orders instantly, which is important. For example, when an acquisition is announced, day traders looking for an arbitrage move may place their orders before the rest of the market can take advantage of the price difference.
A typical business room has access to all the leading news stories, regular coverage from news organizations, and software that regularly scans news sources for important stories.
Trading software is an expensive necessity for many day traders. Those who rely on technical indicators or swing trades rely on software, not news. This software can be identified by the following:
For the average investor, day trading can be confusing due to the range of risks involved. The US Securities and Exchange Commission (SEC) highlights some of the risks of day trading, which are summarized below:
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Day trading is exactly the same as any stock trade, except that both the purchase and sale of a stock take place within the same day, and sometimes within seconds of each other.
For example, let’s say a day trader has completed an audit of the technology of a company called Intuitive Sciences Inc. (ISI). The analysis shows that this stock, which is listed in the Nasdaq 100, shows a price trend of less than 0.6% on several days when the NASDAQ is more than 0.4%. Traders have reason to believe this will be one of those days.
A trader buys 1,000 shares of ISI when the market opens and then waits until ISI reaches a certain price, perhaps a 0.6% rise. The trader then immediately sells all shares in ISI.
This is a day’s work. Obviously, the merits of ISI as an investment have nothing to do with the practices of day traders. Culture is exploited.
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A successful day trader understands the discipline of technical analysis. This is identifying trading opportunities by observing and planning the price and volume movement patterns of a stock (or any other investment). The long-term trend shows how the market has performed in the past and suggests how it should behave in the immediate future.
Technical analysis doesn’t always involve pen and paper these days. There are software packages that help create charts and graphs for this purpose.
A day trader must also have a plan before placing a trade. Which products to trade and which prices are acceptable for buying and selling must be determined in advance. A successful day trader leaves no room for impulse purchases.
Finally, even a solo day trader must have a trading desk, fully equipped with the news services, real-time data and brokerage services needed to execute the plan.
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If you trade on margin, you will also need a lot of money on deposit with the broker. This is not recommended for beginners as it carries a huge risk that the trader will end up bankrupt and deep in debt.
The first rule of day trading is not to stay in a position when the market closes for the day. Win or lose, sell out.
Many day traders make it a law not to take an annual position overnight
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