The definition of “day trading” is the buying and selling of a security in a single trading day. If you’re day trading online you will close out your position before the markets close for the day to secure your profits. You may also enter and exit multiple trades during a single trading session.
Brokers on occasion have different definitions for ‘active’ or day traders. Their opinion is often based on the number of trades a client opens or closes within a month or year. Some brands even refer to ‘hyper-active traders’ – a step beyond the ‘active trader’.
Day trading is normally done by using trading strategies to capitalise on small price movements in high-liquidity stocks or currencies.
What Can Be Traded?
The most lucrative and popular day trading markets today are:
- Forex – The foreign exchange currency market is the world’s most popular and liquid.
The sheer volume of forex trading makes it attractive for day traders. There are multiple short-term opportunities in a trending currency pair, and an unrivalled level of liquidity to ensure opening and closing trades is quick and slick. More suited to technical analysis, there are other ways to trade foreign exchange. In addition, forex has no central market. This means traders can make trades six days a week, 24 hours a day. They present a great starting point for entry level or aspiring traders with full time jobs.
- Stocks – Physical stocks in individual companies, regular and Leveraged ETFs (an “Exchange Traded Fund” holds multiple stocks or commodities and is traded like a single stock), futures, and stock options.
Trading stocks intraday offers different opportunities than a traditional ‘buy and hold’ strategy. Speculating on stock prices via CFDs or spread betting for example, mean traders can profit from falling prices too. Margin or leverage also reduce the capital required to open a position. So you can take a position on the latest news release, product announcement or financial report – as well as technical indicators.
- Cryptocurrencies – The two most popular currently are Bitcoin and Ethereum.
The financial vehicle of the moment. Spectacular growth has seen cryptos attract many new investors. Brokers are also ensuring retail access to these markets is less complicated. Taking a view on any of these new blockchain based currencies is being simplified all the time. Barriers to entry are now almost nil, so whether you are a bull or a bear, now is the time.
- Binary Options – The simplest and most predictable method, as the timing and return on a successful trade are known in advance.
Regulatory changes are pending, and with the sector maturing, these products are now offered by big established brands. The only question for you is – will the asset rise in value, or not? With the downside limited to the size of the trade, and the potential payout known in advanced, understanding binaries is not difficult. They offer a different method of trading, and can play a part in any day trader’s daily portfolio.
- Futures – The future price of a commodity or security.
- Commodities – Oil and natural gas, food stuffs, metals and minerals
If you’re S&P 500 day trading, you’ll be buying and selling the shares of companies, such as Starbucks and Adobe. In the day trading forex market, you’ll be trading currencies, such as the Euro, U.S dollar and GBP. In the futures market, often based on commodities and indexes, you can trade anything from gold to cocoa.
Index funds frequently occur in financial advice these days, but are slow financial vehicles that make them unsuitable for daily trades. They have, however, been shown to be great for long-term investing plans.
Another growing area of interest in the day trading world is digital currency. Day trading with Bitcoin, LiteCoin, Ethereum and other altcoins currencies is an expanding business. With lots of volatility, potential eye-popping returns and an unpredictable future, day trading in cryptocurrency could be an exciting avenue to pursue.
Recent reports show a surge in the number of day trading beginners. But unlike the short term trading of the past, today’s traders are smarter and better informed, in part due to trader academies, courses, and resources, including trading apps. Daytrading.com exists to help novice traders get educated and avoid mistakes while learning how to day trade.
Day trading 101 – get to grips with trading stocks or forex live using a demo account first, they will give you invaluable trading tips. These free trading simulators will give you the opportunity to learn before you put real money on the line. They also offer hands-on training in how to pick stocks.
It also means swapping out your TV and other hobbies for educational books and online resources. Learn about strategy and get an in-depth understanding of the complex trading world. DayTrading.com is the ideal beginners guide to day trading online.
Books for Beginners
- ‘Day trading and swing trading the currency market’, Kathy Lein
- ‘Day Trading for Dummies’, Ann Logue
Both books will provide you with the basic day trading rules to live by. You’ll also benefit from advice on stock picks, plus creative strategy ideas. As Benjamin Franklin highlighted, ‘an investment in knowledge pays the best interest’
Patterns And Technical Analysis
Day trading chart patterns paint a clear picture of trading activity which helps you to decipher individuals’ motivations. They could highlight s&p day trading signals for example, such as volatility, which may help you predict future price movements.
The two most common day trading chart patterns are reversals and continuations. Whilst the former indicates a trend will reverse once completed, the latter suggests the trend will continue to rise. Understanding these trading patterns, as well as ‘triangles’, ‘head and shoulders’, ‘cup and handle’, ‘wedges’ and plenty more, will all make you better informed when it comes to employing your trading strategies.
Day Trading Strategies
Head over to websites like Reddit and you’ll see many trading dummies will often fall at the strategy hurdle, taking the first momentum examples they see and losing money left, right and center. Savvy traders will employ day trading strategies in forex, grain futures and anything else they’re trading in, to give them an edge over the market. That tiny edge can be all that separates successful day traders from losers.
There are a number of day trading techniques and strategies out there, but all will rely on accurate data, carefully laid out in charts and spreadsheets. Options include:
- Swing trading
- Trading zones
- Trading on volume
- Arbitrage trading
- A simple day trading exit strategy
- Utilising news
It is those who stick religiously to their short term trading strategies, rules and parameters that yield the best results. Too many minor losses add up over time.
Part of your day trading setup will involve choosing a trading account. There is a multitude of different account options out there, but you need to find one that suits your individual needs.
- Cash account – Day trading with a cash account (also known as without margin), will allow you to only trade the capital you have in your account. This limits your potential profits, but it also prevents you losing more than you can afford.
- Margin account – This type account allows you to borrow money from your broker. This will enable you to bolster your potential profits, but also comes with the risk of greater losses and rules to follow. If you want to start day trading with no minimum this isn’t the option for you. Most brokerage firms will insist you lay down a minimum investment before you can start trading on margin. You can also experience a margin call, where your broker demands a greater deposit to cover potential losses.
The brokers list has more detailed information on account options, such as day trading cash and margin accounts.
Day Trading vs The Alternatives
Yes, you have day trading, but with options like swing trading, traditional investing and automation – how do you know which one to use?
- Swing trading – Swing traders usually make their play over several days or even weeks, which makes it different to day trading. It can still be a good method for the trader who wants to diversify.
- Traditional investing – Traditional investing is a longer game and looks to put money in popular assets such as stocks, bonds, and real estate for long-term value appreciation. Realistic investment returns over a whole year are in the 5-7% range. Unless you are already rich and can invest millions, traditional investing returns too little to make much of a difference on a daily basis. However, the intelligent trader will also invest long-term.
- Robo-advisors – An increasing number of people are turning to robo-advisors. You simply chose an investing profile, then punch in your degree of risk and time frame for investing. Then an algorithm will do all the heavy lifting. This is normally a long-term investing plan and too slow for daily use.
Day trading vs long-term investing are two very different games. They require totally different strategies and mindsets. Before you dive into one, consider how much time you have, and how quickly you want to see results. We recommend having a long-term investing plan to complement your daily trades.
Day Trading For a Living
So you want to work full time from home and have an independent trading lifestyle? If so, you should know that turning part time trading into a profitable job with a liveable salary requires specialist tools and equipment to give you the necessary edge. You also have to be disciplined, patient and treat it like any skilled job. Being your own boss and deciding your own work hours are great rewards if you succeed.
Whilst it may come with a hefty price tag, day traders who rely on technical indicators will rely more on software than on news. Whether you use Windows or Mac, the right trading software will have:
- Automatic Pattern Recognition – Identifies flags, channels, and other indicative patterns,
- Genetic and Neural Applications – Profit from neural networks and genetic algorithms to better predict future price movements.
- Broker integration – With direct links to brokerages, you can automatically execute trades, removing emotional distractions and streamlining the execution process.
- Backtesting – Applies strategies to previous trades to demonstrate how they would have performed. This enables traders to better understand how particular trading methods may perform in the future.
- Multiple news sources – Online newsfeeds and radio news alerts play an integral part in day trading. As Kofi Annan rightly asserted in one of the most prudent trading quotes, ‘knowledge is power’. The more you know, the quicker you can react, and the quicker you can react, the more day trading profits you might make