Day trading is making short-term trades, lasting less than one day. In an attempt to extract a profit from the financial markets. Some day traders are very active, making many trades each day. While other traders may only make one or two trades per day. The most common day trading markets are stocks, Forex
It can be lucrative for some, but the long-term success rate is low.
There is a lot of hype around day trading. Some websites promote it as a way to get rich quick (it isn’t), and others say it is impossible (also not true). There are lots of day traders around the world who find success and make a living off the markets. So the truth lies somewhere between those two extremes. If you’ve thought about day trading, it’s worth your time to read through and understand the concepts discussed below. So that you’ll be better prepared for what to expect if you decide to proceed.
We will cover how long it takes to start earning an income, day trading styles. capital requirements, best day trading markets, profit expectations, software and hardware requirements. Finally hurdles traders face, and how to become a better day trader.
Time Investment to Day Trade Successfully
Day trading isn’t a get rich quick career, nor is it something that takes years to gain consistency at. Expect to spend six months to a year honing your skills and practicing a strategy. Before you become comfortable with it in all conditions.
The hard part is that a day trading strategy may work great this month, but next month it doesn’t. Day traders need to keep adjusting, as no two day in the market are exactly alike.
The problem most new traders make is that they don’t practice a strategy in a demo account. for several months or more, before risking real capital. Thus, they have no idea how a strategy works, and how they need to adjust it when market conditions change. The demo accounts serves as a testing ground. Where new traders can test out ideas, see what works and hone trading skills.
Commit to spending at least six months to a year, every day, practicing a specific method of day trading. Day trading requires a daily time commitment, even when practicing. Practicing every day builds the habit that requires day trading real capital.
As you begin practicing, you may notice you perform better at certain times of the day. Focus on these times. While practicing may take several hours per day during the first year, many experienced day traders only trade for one to three hours per day.
There is a quoted statistic that only about 5 percent of day traders succeed. This is a good approximation. Most people who try day trading will not succeed. Yet most of them do not practice everyday for six months to a year either. Time investment & quality practice increase a day traders chances of being 5% successful.
Day Trading Styles
There are many day trading styles, but it comes down to personal preference. Some traders are very active, catching small price movements with large position prices.
These types of traders are scalpers. They often makes dozens of trades a day (but this is not required).
Other day traders may only take several trades a day, but they try to capture bigger price movements. These trades last longer than a scalper’s trades, yet may also be quite short-lived at times.
Most day traders trade off of price charts to help see where orders are being placed by market participants. These two tools help traders make trading decisions. Some traders may also focus on specific news events, or trade off statistic tendencies that they have researched.
Different markets need different amounts of capital to day trade. Stocks are popular, but also the most capital intensive. If you want to day trade stocks in the US, the least you need is $25,000. And you’ll actually need more because you need to keep your balance above $25,000. Starting with $30,000 or more is the recommended price. The stock market provides up to 4:1 leverage on day trades.
So, a $30,000 deposit allows a day trader to use up to $120,000.
If you day trade forex you can start with as little as $500 , though starting with more recommendation. In forex, leverage of up to 50:1 (or more in some countries) is available. While 50:1 leverage is likely overkill. utilizing 5:1 or 10:1 leverage allows traders to take positions up to five or ten times the amount of their capital.
Day trading futures is possible with a $1,000 deposit but more is recommend. While leverage can amplify returns, it can also create large losses or result in a negative account balance. Always use leverage with caution, and utilized a stop loss order on trades.
What Markets to Day Trade
Stocks, foreign exchange (forex) and futures are the most popular day trading markets. They are all good markets and offer similar profit potential.
Which one to choose comes down to personal choice.
Day trading stocks means buying and selling the shares of various companies, on a daily basis.
Foreign exchange is buying and selling currencies. The most popular day trading currency pair is the euro/ U.S. dollar (EUR/USD). Day trading this pair involves buying when the EUR expects to rise relative to the USD. Or selling when the EUR expects to fall versus the USD.
Futures are a contract that match up a buyer and seller at a specific price. With the buyer agreeing to pay that price for the asset when the contract expires in the future. The seller is agreeing to deliver the asset, like oil for example, to the buyer when the contract expires. Day traders are never required to deliver or pay for the actual asset. Because all positions open and close within the day (no open obligations). Profits are losses base on the prices the contract opens and closes at.
Each market has its own nuances, and will take time to learn. Learn one, instead of trying to trade them all. Day traders may branch out and trade all markets, but beginners should focus on one.
Expected Monthly Income
There are day traders who make a living and lots that lose. And there are day traders who make hundreds of thousands of dollars a year.
The best way to get a sign of what your profit potential will be is to start practicing in a demo account. In the demo account use the same amount of money that you will be depositing when you open a live account. After 6 months to a year you will have an idea of whether day trading is viable for you.
It’s recommended new traders only risk 1 percent of their account (or less) on a trade. That means a losing trade has a very small affect on the capital balance.
If risking 1 percent per trade day traders can expect to make between 10% and 30% a month. This is not what a trader will make, but rather a goal to work towards. Note that these figures base on smaller account sizes. Which is what new traders are starting out with.
The more capital a trader has, the lower the percentage return. It’s easier to make high returns on smaller amounts of capital. Than it is to make the same return on large amounts of capital. For accounts over $100,000, percentage returns will start to drop.
Keep in mind, these figures base on having a solid method and having practiced it in all market conditions. It will likely take six months to a year, or even longer, before you can expect these returns on a monthly basis.
Hardware and Software Requirements
Day in the modern age requires a computer or laptop; a reliable one! While trading off a laptop or one check is fine, some day traders prefer having two more monitors (or more) to keep tabs on many assets.
Internet access is also a must, with
Having a phone (cell phone or land line) is also recommended. In case of internet going down, it is good to have an alternate means of contacting your broker. Other than email, chat, or your trading platform, which won’t be working.
To place demo or live trades, day traders need a trading platform. Brokers provide day traders with their own software, but third-party software can also
Most trading platforms have charts included. Having reliable and easy to use charting software is also a rule for day trading.
Finally, day traders need a broker and they need market data. When opening an account, A trader specifies what they want to trade & requests prices for that market. This is also called a data feed. The data feed shows traders the current price. Allowing them to transact with the market place via the trading platform.
Hurdles to Day Trading with Success and Consistency
Day trading poses many hurdles. Each trading day is different. Traders need a method that works in all market conditions. That doesn’t mean a day trader will win every day. But, even with a great method, there still may be several losing days a month. Winning every trade or every day isn’t important. It is winning over the course of each week and month that matters.
Find (research or develop) a method that adapts to market conditions. This means avoiding systems that contain lots of indicators or need constant research. For example, if you want to learn how to day trade forex consider using simple price action strategy.
Day traders also face psychological hurdles. There is no guaranteed paycheck, which can weigh when bills are due but your trading isn’t going well. This can be a vicious cycle leading to more trading mistakes and worse performance.
Invest in Yourself, Not in Day Trading Gimmicks
Software products that promise riches overnight have a very short shelf life. They may work for a little while, but they will fail you unless you know how to make adjustments to the software.
Consider getting help from someone you know and who’s method you feel would work with your needs. Invest in your own education, not trade signals you pay for expensive subscriptions. these only serve to make you reliant on someone else. Invest in yourself from the start. That way, no matter what happens you have the skills to get the job done, on your own.
Expect to put in at least six months to a year before you start to see any sort of profitability and consistency. It may come sooner, and that’s a bonus, but don’t assume that it will. Day trading stocks need at least $25,000, forex requires at least $500 and for futures you’ll want at least $3,500 or more.
Day trading requires more money than a deposit, though. Get setup with a good computer, one or two monitors, a trading platform and data feeds. With many brokers the data feeds for various markets cost money, so pick a market and stick with it. There is no reason to pay for data feeds you won’t be using. Also, a consistent income isn’t likely during the first six months to a year. So save up for living expenses if attempting to day trade as a primary income stream.
Focus on simple methods that you can work on and practice yourself. Don’t become too reliant on others. In the long run, you are better off investing in yourself and an education that will last forever. Not blowing money on signals or gimmicks that offer no long run benefit to your trading career.