Learn how to day trade online with our day trading for dummies guide. There are six things every beginner should know before starting day trading stocks. Everything you need to know about day trading is going to be revealed through this day trading for beginner's guide.
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In this day trading tutorial, we’re going to give you six day trading tips that will teach you how to day trade stocks. Day trading is a legitimate career that can give you freedom from your regular 9 to 5 job. We created this day trading for dummies guide so you can avoid the most common mistakes novice traders tend to make.
We'll dive into day trading basics, plus more advanced strategies.
So, you want to learn how to day trade?
Let’s start by answering the first basic question: What is day trading?
What is Day Trading?
Day trading is the act of buying and selling a financial instrument within a single trading day.
Whenever you open a trade with the intention to take advantage of small intraday price fluctuations, and close that trade within the same trading day, you’re engaged in day trading.
Pretty simple, right?
The only thing you have to remember is that if you close your position before the market closes, you’re a day trader.
Eg: If you buy and sell Bitcoin within a single trading day, you’re day trading Bitcoin.
Many successful traders use day trading strategies as opposed to long-term trading strategies. They are considered as one of the best ways to get rich quick. But, we also have to remember the dire risks that come with day trading.
Deciding which style of trading is better, day trading or long-term investing comes down to more than just your personal preference. There are several key factors, like mental discipline, your ability to act under pressure. It's also important to remember that you can still fail if you don’t have the right approach.
You may be asking yourself, "should I day trade?" In the next section, we'll cover the core traits you need to become a successful day trader.
Who Should Day Trade?
Wondering if you should day trade? The way to make a profit in any market (stocks, Forex, commodities, cryptocurrencies) is to find a trading style that suits your personality. Some people have a natural skill set that is more suitable for day trading than others.
Becoming a successful as a day trader requires a lot more than just a good day trading strategy. You also have to have:
- Mental discipline.
- Quick thinking abilities.
- The ability to work under tremendous pressure.
If your personality doesn’t match your trading style, you can end up in a risky situation. For example, if your trading style is to move at a slower pace, you may not be suited for day trading. You will be better suited to swing trading. Basically, you need to understand your trading time frame personality.
Veteran trading psychologist and bestselling author Brett Steenbarger discovered that trading success means focusing on your personality strengths.
Another thing to remember is that day trading also has regulatory ramifications. FINRA will only allow you to engage in this form of trading if you have at least $25,000 in your account. This is also known as the PDT rule (Pattern Day Trading).
So, should you try day trading?
If you have more than $25,000 in your account and operate well under pressure, day trading is be a good option. It depends on your trading personality, risk tolerance, and financial liquidity.
If you're lucky, you fill in all the requirements outlined in this section. You're one step closer towards making a career as a day trader. Now, you need to learn the right way to day trade. For those of you who don't meet the requirements or don’t want to risk your retirement or savings, you can always use a social trading platform to copy a professional day trader.
Why Day Trading? - Day Trading Benefits
So, what are the benefits of day trading?
- No overnight risk of holding the stock.
- You can make money both when the stock price is rising and when the stock price is falling.
- You can use an additional margin. The use of leverage and fast market entry and exits make day trading stocks alluring.
- You don't have to perform detailed research about the company’s fundamentals. You are only speculating on the day to day price fluctuation.
- You can make money quickly compared to long term trading.
These are just a few of the advantages that day trading has to offer. This should motivate you why day trading is a good approach to trading the financial markets. You may also be interested in our guide on day trading ETFs.
Next, we need to learn how to day trade stocks in a way that will give you consistency.
If you're interested in day trading for a living, this 3 step process will teach you how to day trade stocks with success.
How to Day Trade Stocks
Learning how to day trade involves more than just picking the best day trading stocks. It requires a system of planning, practice, and patience. Here are some core principles you need to follow when getting started with day trading.
Rely on the "Three P's" Rule:
- Planing – You need to develop your own winning day trading plan, otherwise, you’re planning to fail. It’s important to have a personal map for your trades because there are many storms you can experience when trading.
- Practice – An essential piece of your trading toolkit should be to practice your strategy until you master the game of day trading. After all, repetition is the mother of all learning.
- Patience – Once you have your trading plan ready, have the patience to stick to your rules.
You need to know when to day trade, what time of the day to trade, which day trading stocks are the best to tackle and which day trading strategies to employ.
If you can master the art of patience and follow your day trading rules, it can be a real game-changer for your trading.
If you really want to improve your success rate and further optimize your strategy, you need to know the best times to day trade.
When Are the Best Times for Day Trading?
So, what is the best time for day trading? The best times for day trading are during the first and the last regular market trading hours, between 9:30 - 10:30 AM EST and 3:00 - 4:00 PM EST.
The stock market has the tendency to produce most of its price movements during specific times of the day.
It’s well-documented that the stock market is the most volatile during the first hour of the trading day (9:30 – 10:30 AM EST) and the last hour of regular market trading (3:00 – 4:00 PM EST). These are often referred by the pros as the power hour stocks.
A day trading strategy can’t survive without volatility. Volatility is the life and breath of any successful day trader.
Now, you have the mindset of a calculated sniper ready to patiently wait for the best trading opportunities.
There's one more thing left for you to complete your education about day trading. If you want to bring your game to the next level and approach day trading the right way, you'll need to learn how to day trade stocks using a chart.
Day Trading Strategies - Price Action and Chart Patterns
Day trading strategies typically rely on two types of stock analysis: fundamental and technical analysis.
In order to find potential day trading opportunities, you need to focus on chart-based technical analysis. You only need to have one good price action pattern that repeats every day to have success as a day trader.
Our team at Trading Strategy Guides has put together the most comprehensive guide to different day trading chart pattern strategies. In order to understand the psychology of a chart pattern, please start here: Chart Pattern Trading Strategy step-by-step Guide.
If your favorite stock tends to generate the same pattern over time, chances are that stock will continue to follow the same pattern it has done in the past. That’s why we recommend studying historical stock charts to find repetitive patterns.
When you search for a day trading pattern only look for clean and easy price action.
If you’re having a hard time determining whether there is a pattern on the stock chart or not, chances are that this is not a tradable stock pattern. You need to look for predictable and reliable stock chart patterns to be a successful day trader.
For example, breakouts that occur during the first hour of regular trading hours and are accompanied by increased volume, have a very high probability of seeing follow-through. The best way to day trade breakouts is to wait for a close above the resistance level. You'll also want to see a close below the support level before you short sell the stock.
See stock chart below:
Day trading breakouts is an easy and clear pattern that takes advantage of the volatility generated by the break of these key levels. This is a good method to learn how to day trade stocks and grow your account.
Also, be sure to read this article on the best day trading platforms.
Final Words – How to Day Trade
Day trading requires intense focus. If you learn how to day trade the right way, you can attain financial independence. Once you create a profitable trading plan you’ll be able to spot repetitive and profitable stock chart patterns. If you need help, you can accomplish all of the above through our trading resources and trading strategies that are so popular here on the TSG website.
Before you develop your own day trading strategies, make sure you have each point covered through this article before you risk any of your hard-earned money. With the S&P 500 reaching new all-time highs almost every day, there’s never been a better time to start day trading stocks for a living.
Finally, we hope that this day trading for dummies guide will get you started in the stock market.
Thank you for reading! Also, read our guide on day trading penny stocks.
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