Day Trading Strategies – How to Start Day Trading
When it comes to day trading, you really need to have a good strategy and be able to stick to it in order to bear a fruitful outcome. Since you are going to deal with small price fluctuations, you need to determine how you can capitalize on these movements to make a profit at the end of the day.
This article will help budding and aspiring day traders in determining the best strategy for this type of trading.
Day Trading for Beginners
Before anything else, what is day trading? Day trading is the act of buying a financial instrument such as stock and then selling it within the same day or even multiple times in one day for profit. This type of trading might sound easy for beginners because it only involves one day of monitoring price changes, however, it is actually the opposite. Day trading can be very rewarding if you have formed a solid strategy before indulging. But without proper research and education, day trading is risky and dangerous. You need great day trading strategies so let’s dig in.
What Is Considered A Day Trade?
A day trade is buying and selling a trade in one day by monitoring short-term, small price fluctuations.
How Much Do You Need For Day Trading?
Your capital for day trading will highly depend on what market you will decide to trade.
When trading stocks, it is required to have a minimum balance of $25,000. If you are planning to make more than 4 day trades per week, you need to start with a balance of $30,000 in order to have a buffer. If your balance falls below $25,000, your account will be flagged and you will be unable to continue day trading.
For forex, there is no required minimum balance but you need to have at least $500. This might only result in small profits which will eventually grow over time. If you are looking for a higher profit, start at $5,000.
For day trading futures contracts, it is recommended to start with $7,500 to $10,000 although some allow a deposit as low as $1,000. The reason for this is because the cost of contracts varies from each other.
How Do I Start Day Trading?
While the technical aspects of day trading are very important, it is also important to make sure that you are physically and mentally ready for it. Here are 10 useful steps on how to start day trading:
- Know the terminologies. Learning about common jargons in trading will help you understand the basic terms and their meanings.
- Learn basic trading procedures. Keep up with news and current events that can possibly impact the stock market such as changes in economic policies.
- Start small. As a beginner trader, you should not shell out big amounts of money in your first tries. You might also want to stick to a maximum of three stocks per day.
- Set aside a budget. You should know how much of your capital you are willing to risk. Most successful traders only put 1% or 2% of their overall trading account on the line.
- Manage your time wisely. You cannot make a profit if you only spend one or two hours of trading. Make sure that you allot most of your day for trading in order to constantly monitor the market and identify opportunities. Day trading is not for traders who have limited time.
- Time the trades. When you are just starting out, do not trade immediately as soon as the market opens up and instead, read the market for at least 15 to 20 minutes before making any move. Prices are volatile usually an hour after the market opens and just before the closing bell.
- Cut losses using limit orders. When entering and exiting trades, it is important to use limit orders. Limit orders help in trading with precision and let you set a price for buying and selling.
- Keep emotions intact. Because you need to move quickly when it comes to day trading, you need to make sure that your decisions are ruled by logic and not emotions. You need to stay focused at all times.
- Follow your strategy. A trading strategy will help in keeping focused on trading. Planning a strategy in advance allows a trader to move quickly while still make appropriate decisions.
- Seek mentorship. The best way to learn day trading strategies is to look for experienced traders. Find the right community for you and ask questions about strategies or day trading in general.
Is Day Trading Illegal?
Day trading is not illegal. Your account will only be restricted if you trade stocks with a balance of below $25,000.
Why Do Traders Lose Money?
As mentioned before, day trading is very risky. Beginners are most likely going to lose money for the first few months or years. There are several reasons why traders lose money when it comes to day trading:
- Lack of knowledge about day trading
- No trading plan or strategy
- Poor money management
- No self-discipline
- Poor decision making
- Unable to control emotions
- Unable to admit mistakes
A Simple Day Trading Strategy
When it comes to day trading, you need to keep it simple. Because you need to monitor even the smallest price fluctuations throughout the day, you will need to have a strategy that will be able to make you decide quickly and efficiently. The best day trading strategies are simple.
Which Day Trading Strategies are Best?
There are no single day trading strategies that will work all the time but a strategy will help in determining low-risk, high-reward trades. There are all sorts of strategies that you can use as your trading aid such as analyzing technical indicators in the charts.
Below are some of the most common day trading strategies :
In momentum trading strategy, you need to find stocks that are moving. It is based on the strength of the price trends moving strongly to a certain direction until that trend will lose strength. Momentum in trading is determined by factors such as trading volume and the rate of price changes.
Reversal trading, pullback trading or trend trading is when you trade against a trend. In this strategy, you need to identify pullbacks and also predict their strengths. Beginners are not advised to use this strategy as it needs in-depth knowledge of the market and experience.
In scalping strategy, a trader will buy and sell within seconds or minutes. You need to make quick decisions and have strong self-discipline when implementing this strategy. When done correctly, scalping allows small wins to add up to a much bigger profit.
News trading strategy is a strategy wherein a trader bases his decisions on current news events.
Breakout trading is a strategy wherein a trader is on a lookout for a stock that rises above its former top resistance price.
Any of these strategies can be used by beginners or experienced traders. You only need to make sure that the three essential components are taken into account when choosing a strategy: liquidity, volume, and volatility. Liquidity allows a trader to enter and exit a trade at a stable price; volume is also known as the average daily trading volume for day traders and tells how many times a stock has been traded within a period of time; and volatility determines the range of profit and loss.
How Do I Start Day Trading?
Day trading entails constant monitoring of price movements in the market throughout the day. This can be rewarding if done correctly but can cost you a lot especially when you lack preparation before the trading session starts. In order to have a successful day trading session, you should follow these steps:
- Decide on what to trade. Before anything else, identify first what financial instrument you are going to trade. Choose one among stocks, forex, futures, options, or currencies and master it before moving to another instrument.
- Find the best broker for you. When choosing a broker, consider the following factors:
- Commissions and fees
- Research tools used
- Charting tools and software
- Fast trading platform
- Regulated by an agency
- Great customer service
- Develop a strategy. A strategy will aid you when you trade. Study the different strategies and find out what suits you best.
- Set goals and limits. Be realistic when you trade. You will not probably make profit as you start but practice will eventually hone your skills.
- Determine when to trade. Traders usually make a trade an hour after the market opens and just before the closing bell.
- Set aside money. Determine how much money you are willing to risk. Also, always keep in mind that not all trades will result in profit.
What Is The Best Day Trading Platform?
There are many day trading platforms available in the market currently and it can be difficult to choose which one to use. When it comes to day trading strategies, you need to have a platform that is fast and reliable at a low cost. It also needs to have the ability to monitor price volatility, liquidity, and volume.
Successful Intraday Trading Strategies
After you have researched and identified what socks to trade, the next thing to do is to develop a strategy that will help you gain profit from them. There are several intraday trading strategies traders apply in their sessions. Not a single one can be applied for all so it is best to find out yourself what trading strategy suits your personality.
How Can I Be Successful In Day Trading?
To be successful in day trading, you need to have an in-depth knowledge of the market you are going to trade in. Going in blind without knowing anything is very foolish. You also need to be disciplined and patient as day trading does not guarantee you will earn profits on your first try. A trading plan or strategy will also be helpful in making profit b
What Percent Of Day Traders Are Successful?
There is no exact data of how many day traders are successful but it is estimated around 5-6%. Why the low number? Most day traders, especially those who are just starting, are only doing this part-time, therefore, unable to get a consistent view of the market. Others also fail to be successful because they aren’t well-prepared or they let their emotions run high. In day trading, traders should always use their head in making decisions because this is a short-term trading.
Why Do Day Traders Need 25000?
The U.S. Securities and Exchange Commission (SEC) requires a trader to have at least $25,000 in his account at all times and can only trade in margin accounts four or more times in 5 market days. When a customer follows this, he will be qualified as a “pattern day trader (PDT)”. If the account of the PDT falls below $25,000, his account will be flagged and will not be permitted to trade until the required balance is restored.
Entry And Exit Strategies For Day Trading
To be able to make a profit in day trading, determining the best time to enter and exit trades is very essential. One can be successful in entering a trade but the exit strategy is wrong, resulting in a loss.
What is the Ideal Time to Trade Intraday?
When it comes to day trading strategies, timing is very essential. Experienced day traders may quickly find patterns that will lead to profit but for beginners, it is highly recommended to wait for a few hours and study the market first. Usually, the hour after the market opens and just nearing the closing bell are the ideal times to trade as the market is volatile during that time.
When is the Best Time to Enter a Trade?
You can enter a trade in many ways by studying the price changes. Support and resistance places are the zones where you can monitor the concentration of support for or resistance against an asset’s price. Trendlines are also a great indicator when to enter a trade as it will determine trend shifts.
When is the Best Time to Exit a Trade?
Exiting a trade will determine whether you make a profit or not. The best time to exit a trade is when you have reached a profit target or a pre-determined price level where the trade will be closed ar opportune times such as pivot point levels or trend line breaks. A stop-loss order is also helpful to determine when to exit a trade by closing it when the price falls below the price target.
Forex Day Trading Strategies
There is no single strategy that is applicable to every forex day traders. Good forex day trading strategies needs to comply with proper money management. In the end, it boils down to what is suitable for your trading personality.
How Do I Become A Successful Forex Day Trader?
To become a successful forex day trader, you need to follow these guidelines:
- Focus only on a single currency pair first
- Utilize stop-loss orders
- Develop a strategy and stick to it
- Keep your emotions separate from trading
- Don’t rely too much on forex trading indicators
- Don’t risk too much money
- Practice with a demo account
- Don’t be afraid of losses
What Is An Entry Point In Forex?
An entry point in forex can be determined by using trendlines, moving averages, and indicators. The entry point allows the investor to place a good stop-loss order and identifying a risk-reward potential.
Which Currency Pair Is Most Profitable In Forex?
There is no single currency pair that can be considered as the most profitable in forex. However, the most dominant and strongest currency is the US Dollar as it is the preferred currency in most exchange transactions. The following currency pairs are the best to trade due to their high liquidity:
In order to determine the most profitable, you need to study the currency pairs. Currency values are constantly fluctuating so it is important to keep an eye on these changes.
Can I Make A Living Trading Forex?
You can make a living by trading forex but it will be difficult. You need to have enough trading skill, patience, and discipline before you can go full-time with forex trading. A large amount of money is also required to take positions that will yield profit. If you are serious about being a full-time forex trader, you might want to learn from experienced forex traders. But if you are just starting out, it is better to make small trades and practice to familiarize yourself.