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The Ultimate Guide to Day Trading Stocks

Updated: May 12




Day trading requires you to open and close a position within the same day. For instance, opening a new position at 9:00 AM and closing it by 1:00 PM on the same day is what we call day trading. On the other hand, opening a new position at 9:00 AM and closing it at 10:00 AM the next day is not a day trade.

Day traders, also known as active traders, primarily focus on the market behavior, perform technical analysis, and use a sophisticated strategy to generate higher returns on investments (ROIs) in a short period. A successful day trader always uses margin to increase the purchasing power.

Besides, a profitable day trader does not pick any stock and trade. The trader focuses on creating a solid plan based on their understanding of money management rules, parameters, and risks. Do you want to day trade in stocks? If yes, you are in the right place. Today’s article will give you a step-by-step and thorough approach to becoming a successful day trader.

Day Trading Facts

A 2017 research study shows that about 80% of day traders quit their operations within two years. About 40% of people trade for one month and fail to continue their operations due to ineffective strategies.

Only 13% of people continue to day trade after three years. Likewise, only 7% of day traders remain active after five years. These statistics show that day trading is a daunting task if you don’t know the rules or how to play the game.

Another study highlights that gamblers do not perform well when trading in stocks. Therefore, it is crucial to implement a solid strategy and keep an eye on the market behavior to get the most out of your investment.

Research shows that day traders fail because they repurchase stocks they previously sold for generating profits than stocks previously sold for losses. A 2010 study concludes that investors with recent successful traders tend to trade more.

Although this works for some investors, this is not a viable strategy. The important thing is to act carefully and tactfully without involving emotions. So, a successful day trader always has S.M.A.R.T goals instead of impulse purchasing and selling stocks.

How Does Day Trading in Stocks Work?

Day trading in stocks capitalizes on short-term price movements and actively purchasing and selling shares. It is crucial to seek market volatility to increase opportunities and generate higher ROIs.

The higher movement of a stock is directly proportional to making more profit in a single trade. So, it would help if you learned how to manage risks to mitigate losses and streamline your day trading operations.

We believe a day trader is synonymous with a risk manager because you put your capital at risk of generating more profit. It means risk management skills are critical for a day trader.

If you fail to manage the risk, you will find it challenging to make money consistently. Besides, a successful trader always focuses on predetermined entry and exit points before being involved in the trade. The purpose is to take emotions out of your business and positively manage your position.


Benefits of Day Trading Stocks

Day trading stocks offer a wide range of benefits to people who can manage their feelings and play tactfully. After all, this is all about investing your capital with the primary objective of generating more. Anyway, if done well, you can generate higher profits and create wealth with day trading stocks.

Independence is another perk offered by day trading because most day traders are self-employed. Not only do you work by yourself, but you also don’t answer anyone. So, a day trader is like an entrepreneur who uses unique strategies, makes informed decisions, and manages everything to earn more.

Day trading is also location-independent, meaning if you have a decent internet connection and a computer or laptop, you can trade from a remote location. Likewise, you don’t need to track inventory or communicate with suppliers, giving you peace of mind and tranquility.

Because day trading does not involve goods, products, services, and customers, you don’t need a marketing strategy, unlike other businesses. That way, you can stay calm and spend valuable time analyzing the market for short-term profits.

Another benefit of day trading is that you don’t need a college or university degree to start investing. At the same time, you don’t need a lot of money to start day trading. You will come across numerous successful day traders with high school diplomas.

Day trading is not time-consuming because you open and close your position within 24 hours, depending on the market conditions. Thus, day trading offers you endless opportunities within a short period, meaning you can make a few hundred dollars a day, thousands of dollars a week, and millions of dollars a year.

How to Day Trade in Stocks?

Becoming a successful day trader requires you to follow a step-by-step approach and understand the overall concept. Remember, day traders are different from investors. Although investors and day traders purchase and sell stocks, investors’ primary objective is not earning their living from the stock market.

On the other hand, day traders plan in advance and change their strategy based on the market conditions. The purpose is to mitigate the risk of each trade and increase the likelihood of generating higher ROIs. Here is how you can day trade in stocks. Keep reading!

Understand the Market Behavior

Understanding market behavior and focusing on factors affecting the conditions is the first step to successfully entering day trading. Three primary factors affect market behavior. First, you need to comprehend the market’s liquidity to know whether you can quickly enter and exit your position. We recommend focusing on high liquidity because it allows you to execute multiple trades within 24 hours.

Second, you must understand volatility, an essential factor that affects the market behavior when trading stocks. Volatility refers to the movement of prices at a specific speed. Therefore, an asset’s volatility plays a critical role in day trading. Higher volatility is directly proportional to increased short-term profits, thanks to rapidly moving prices.

Trading volume is the third essential factor you must consider to reduce risks and increase the likelihood of profit. The trading volume of a specific asset refers to measuring the number of times traders have purchased and sold it within a specific period.

If you want to get the most out of your day trading, make sure you keep an eye on the trading volume. A higher trading volume can help you identify various entry and exit points, allowing you to play tactfully and quickly make short-term profits.

Focus on the Suitable Time

Experts recommend knowing the best time to day trade because it helps you optimize your strategies and increase the chances of making more money. Remember, the stock market often has price movements during a specific time of the day.

Therefore, you must stay active and trade at the best time when there are increased price movements in the market. Besides, there is more volatility in the stock market during the power hour stocks.

So, focus on the first hour when the market opens and the last hour when the market closes. Keep in mind that your day trading strategy depends on the market volatility, meaning you should chase stocks during the first and last hour of the market.

However, we recommend staying attentive during the whole day to avoid missing the best opportunities. Although this takes your time and energy, we believe it is entirely worth it, considering the profitability day trading can yield.

Create a Solid Plan and Budget

Although a laptop and internet connections allow you to day trade in stocks, if you want to streamline your operations, make sure you create a solid plan and define your budget from time to time.

Create a budget for purchasing a mid-range computer, laptop, and quality internet services with a higher bandwidth speed. You may also need to choose a broker, depending on your needs. Brokers are licensed and qualified individuals who help day traders make appropriate investments.

You can choose a full-service or part-time broker at a discounted rate. In addition to investing in technology and broker services, you need to develop a strategy that aligns with your trading style and goals. So, this requires you to focus on reading charts, analyzing patterns, and reviewing technical indicators to gain valuable insights.

Choosing a trading platform is an integral part of your strategy. You can use various platforms to develop a sophisticated trading style. There are numerous options available. However, choosing the right one is not easy. We recommend seeking help from your broker to stay afloat on the market. Moreover, you need a minimum of $100 in hand to start day trading.

Understand Chart-Based Technical Analysis

You can perform stock analysis in two ways: fundamental and technical. However, we suggest performing chart-based technical analysis if you want to streamline the entire process and leverage the best sock opportunities.

Remember, this requires you to follow specific price actions and use a stock chart pattern with more transparent, predictable, and reliable data. The purpose is to keep an eye on stock chart patterns that repeat daily. That way, you can become a successful day trader.

Moreover, we recommend studying and analyzing historical chart patterns to gain valuable insights, allowing you to identify repetitive patterns. Look for a clean and easy price action if you want a good trading pattern.

For instance, some traders use day trading breakouts, a successful method for beginners to start in stocks. Not only does it allow for reviewing clean and streamlined patterns, but it also helps you leverage the volatility generated by the break of key levels.

In addition, breakouts usually occur during the first-hour trading, offering increased volume with higher profitability. However, it would help succeed in day trading breakouts if you waited for a close, especially above the resistance level. Let us discuss some of the most common and best day trading strategies.

Best Day Trading Strategies

When you day trade stocks without a sophisticated strategy, it means you are gambling, and this translates to higher risks and reduced opportunities of making good short-term profits. Therefore, it is crucial to develop a strategy and stick to it to understand the mechanics of day trading and get the most out of it. Choose any of the following strategies based on your specific requirements and goals.

Fading

Fading is a commonly used strategy that usually goes against the grain. It requires you to go against the trend of financial instruments. The fading approach postulates that investors will take profits to send back the price down when a stock price runs unsustainable for the top. It is primarily due to overreactions of price movements in the market. Therefore, we recommend short sell the stock by leveraging the downswing when traders execute their trading operations.

Scalping

Scalping is a suitable strategy for traders who want to earn a reasonable profit on each trade. People who want to generate higher profits usually do not use this strategy. It requires you to sell your position when they become profitable.

The scalping strategy is similar to a low-margin business. For example, when you have an opportunity to make a small amount of money on a transaction, you will leverage it without focusing on higher profits.

We believe scalping is an excellent strategy for beginners who want to streamline their trading operations. Scalpers sell stocks when the trade becomes profitable. However, a single loss can affect your returns on investments, especially if it is a substantial loss. Make sure you align your scalping strategy with a sophisticated exit strategy.

Momentum

The momentum strategy is another method used by trader traders, requiring them to find stocks with significant gains and higher trading volumes. The momentum strategy requires traders to dive into the stock and increase demand, leading to price appreciation. So, this signals traders to purchase the stock.

You can also use the momentum strategy on falling stocks. For instance, shares go on a volatile run downward when a company files for bankruptcy. We recommend taking short positions at suitable times to leverage the movement in such a situation.

Daily Pivots

It is crucial to calculate daily pivot points to determine suitable resistance levels and reasonable support. Remember, technical indicators do not always bring accuracy. However, you can leverage higher profitability when a stock reaches support.

The higher profitability of upward movements than downward movements is due to a stock reaching support. On the other hand, the downward movement is more likely to stay ahead when a stock encounters resistance.

When you use this strategy, make sure you look for stocks trading at the support and resistance pivot points for the day. You will enter a short position to purchase shares depending on the asset value.

Key Considerations

A trader does not hold a position overnight because the objective is to generate profits from intraday price movements. However, day trading can lead to risks if you fail to implement a solid strategy. We recommend considering the following factors to achieve success in day trading stocks.

Develop a Positive Mindset

Day trading stocks requires developing a positive mindset and bringing consistency in your approach. Always read your mind and analyze the market conditions before entering a trade. If you think you can’t do this, take a break. It is not necessarily important to day trade every day.

Define and Stick to your Rules

Commitment, dedication, discipline, and management are the core competencies of a successful day trader. You can develop these skills by defining specific rules and sticking to them. So, follow your rule book and ensure your trading decisions are informed. Because the timeframe is shorter in day trading, we recommend reviewing your rules at least once a month. You can make changes in your rules when there is an absolute necessity.

Focus on Money Management

Money management is an integral component of day trading in stocks, allowing you to stabilize your operations and generate higher ROIs. We recommend focusing and maintaining a rick-to-reward ratio of 1:2 for risks and profits.

Risk Management is Key

You can manage risk in day trading by using stop losses while placing orders to enter the stock market. Remember, this is your insurance policy that provides excellent protection from making wrong trades. Keep your eyes open and analyze the risks to ensure you avoid making a bad decision. Immediately stop when you think something is not appropriate.

Final Words

Day trading offers a wide range of benefits, such as no overnight risks of holding stocks, leveraging the opportunity of rising and falling stock prices and using an additional margin. Day trading offers you more independence and autonomy because you get in and out of the market on the same day.

You don’t need to perform thorough research or implement a long-term strategy because you speculate on a day-to-day basis and consider fluctuations in prices. Follow the tips and tricks given above to get the most out of your day trading stocks. Until Next Time!


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