Day Trading: An introduction and quick guide for aspiring speculators.

Day trading is profitable in the long term so instead of treating it as a hobby, treat it as seriously as possible, like how you will treat a job.


It is not surprising to get excited about the potential benefits of investing in the stock market. Many are enchanted by the success stories of people who managed to reap significant profits from this. But while there are numerous stories of success, there are also many stories of failure. Day trading cannot make traders rich on a whim; in fact, people are more likely to be on the losing side. As a matter of fact, investors who have index funds in their portfolios can see a higher return over the long term. Historically, investments that track broad market indexes like the S&P 500 see higher returns than other financial investment vehicles.

But some people were able to profit from day trading. During the early days, people who can actively trade in the stock market are limited to those working in large financial institutions, brokerage firms, and trading houses. But with the advance of technology, financial literacy, and innovation, it has become more accessible and feasible for an individual like you to participate in day trading.

But again, day trading is not for everyone, and it is also not that simple. While it can be a lucrative "career" (if you treat it seriously and you do it properly), it can also be a challenge for beginners. In fact, even seasoned day traders experience losses and rough days. So, what more if the day trader is a beginner. And time is not a guarantee that you will get good at it, especially if you are not keen on research, planning, and strategy building.

However, if you are still keen to try your skills in day trading, it is imperative that you know what you are getting into. It would be best if you also keep in mind some rules, tips, and strategies to approach day trading better.

So, what is day trading? And how does it work? Here are some of the essential tips, strategies, and things you should know before committing yourself to day trading.


What is day trading?

Day trading is a form of market speculation where traders sell and purchase securities within the same trading day. They can also do the sell and buy multiple times. While day trading occurs on marketplaces, it is most typical in foreign exchange (forex) and the stock market.

Some see day trading can as a form of gambling. It is not gambling per se, but the way it is being conducted can be considered as such.  Day traders speculate when they buy and sell securities. They take advantage of small price movements – and capitalizing on these movements can be lucrative if done correctly and thoughtfully. On the other hand, it will be dangerous and challenging for beginners who are not yet familiar with it. And even to those who do not adhere to a well-thought and well-established plan and strategy.


What securities should you trade?

If you plan to participate in day trading, you should decide what kind of securities you will trade. You can choose bonds, currencies, options, futures, commodities, and stocks. But stocks are the more popular option for day traders since the market is active and there is little to almost none in terms of commission.

If you are going to day trade stocks, you should look at the following:



  • Volume. Day traders are fond of stocks because of their liquidity, meaning they are being traded more often and in high volume. Liquidity provides enough room for traders to buy and sell stocks without much change in the price.
  • Volatility. Choosing stocks to day trade is quite tricky, but one characteristic you should look at is volatility. Choose stocks that have some volatility but not too much. If there is volatility, then it means that the price is changing. And if it is changing, you can gain profit since someone might be willing to pay a higher price after you take your position.
  • Familiarity.  Choose to trade the stocks you are familiar with. If you are familiar with it, you can better understand how it will move and trade it better. Knowing how different factors like earnings reports affect the stock price is an indispensable part of decision-making for day trading.
  • Newsworthiness. Choose stocks that get media coverage. News weigh in the interest and decision of people whether to buy or sell it. This, in turn, helps create sufficient volatility and liquidity.



Day Trading Strategies


Aside from choosing the securities you want to trade, you also need to select the strategy you wish to employ. There are many strategies that you can use. These strategies can help you maximize your chance of gaining profit through day trading. Some of these strategies are the following:

· Spread Trading. Spread trading is a typical day trading strategy that relies on speed. It is a high-speed technique that exploits the difference in the stock's bid-ask price. For instance, if a buyer's bid price decreases unexpectedly, a day trader may jump in to purchase the stock and then try to resell it at the ask price or higher, making a little "spread" on the transaction.

· Daily Pivot. This day trading strategy profits from the stock's volatility. In an oversimplified term, daily pivot tries to buy the stock at the low of the day and then sell it on the high of the day to gain profit. Therefore, the price target is simply the price in the reversal.

· Swing Trading. Day traders use swing trading to gain profit through the "range bound." Day traders find stocks that tend to bounce between the high price and low price. They buy stocks when the stock is nearing the low price and sell it when it comes near the high price

5 Highly Recommended Online Brokers for Day Trading

1. Interactive Brokers

Account Minimum

$0

Commission

$0.005 per share for Pro platform, $0 for IBKR Lite


2. Fidelity

Account Minimum

$0

Commission

$0 in stocks and ETFs, $0 plus $0.65 per contract for options


3. TD Ameritrade

Account Minimum

$0, however, $2000 deposit is required to qualify for margin and other options privileges

Commission

$0 in stocks, ETFs, and options trade. A $0.65 contract fee for options.


5 Tips when starting to day trade

Start with a few. Always remember that you are a beginner. It is better to start with fewer stocks to track and trade when you are still just beginning. You can start with one to three stocks. Finding opportunities for fewer stocks will be easier for you since you are still in the process of familiarization.

Research. Do your homework. If you are a newbie, you have to research how day trading works. Familiarize yourself with basic procedures, strategies, and terms. Aside from these, keep updated on the latest market news, events, and happening that can affect stocks like interest rate plans, economic outlook, economic policies, etc.

Keep tabs on information about the stocks you are trading. Keep yourself informed about the companies and the market as a whole.

Use the amount that you can afford to lose. Day trading is challenging for beginners, so use the amount you can afford to lose. Do not use the money you will immediately need like your emergency fund, mortgage, money for the payment of bills, etc.

Nothing is certain in day trading or any other endeavor, and the risk of losing is higher when you are a beginner. The likelihood of mistakes and missed opportunities are higher when you are a beginner, so be prepared to lose some of your money. (Even if you are a seasoned trader, still prepare to lose since nothing is certain).

Don't quit your day job. Being a day trader means setting aside time for day trading. But remember that you are still a beginner. Do not quit your day job if you experience some gains in the beginning. You may be lucky that you started in a bull market, but who knows what will happen if the market experience slumps. You must know how your strategy works during a bear market or recession. Once you prove that your strategy is effective and consistently profitable, you can assess whether to quit your job and commit to it full-time or continue with just the usual.

Keep calm and stick with the plan. Profit in day trading is not certain. There will be instances when the market will test you and your resolution and mind. There will be times when your strategy will bring you profit, and sometimes it will not be that effective. But you have to stay calm. It would be best if you kept fear, hope, and greed at bay. Do not make a trading decision because of these emotions; instead, use logic, data, and news. As a trader, move fast but stay with the plan. If you thought of a strategy and planned your trading based on that, you better follow that formula.


Bottomline

Day trading is one of the many ways of approaching the market. It is lucrative but at the same time challenging. But if you are really keen on trying it, be sure to do your homework. And if growing wealth is your goal, try looking at other means and vehicles so you can have more options and a more informed decision.