What is Day Trading & How to Get Started

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There has been a resurgence of day trading during the COVID-19 pandemic. One reason for this resurgence is the availability of online brokerage platforms. Today anyone with money, time, and willingness to learn can engage in day trading.

Are you interested in day trading? The TU experts have prepared a full guide. There is so much information on how to start day trading. This guide should introduce the world of trading and help you make informed decisions about where to invest.

What is day trading?

A day trader buys and sells stocks for a small profit throughout the trading day. It is a speculative trading style where traders open and close a position within the same day. For example, you can open a new position at 10 a.m. and close it by 2 p.m. on the same day. You can’t call it a day trade if you close a position the following day.

It is a day trading practice because you buy and sell stocks in a short timeframe, typically a day. The goal is to end every transaction with a net profit after commission. You must buy and sell stocks based on current events.

Day traders will trade during the opening hour and close 30 minutes of each market session. It is the period when price volatility is at its highest. For example, they will open trade between 9:30 and 10:30 a.m. Eastern and closes 30 minutes before four p.m Eastern.

👍 Pros

Day trading can be luxurious when done correctly.

Making day trading your full-time job gives you control over your investment and profits. You can set your hours and govern your actions.

You can use multiple-day trading strategies to earn profits. It promises flexibility that is difficult to find in other investments.

The steady rise of online brokers and investing apps makes it easy for anyone with a Smartphone to engage in day trading.

Day trading helps you avoid overnight risks. You don’t have to hold a position overnight and experience unexpected movies.

👎 Cons

Day trading is extremely risky for anyone. You can’t easily predict which direction the stocks will move throughout the day. Traders can easily lose their investments.

Day trading is also expensive. You must have at least $25000 in the brokerage account before day trading. If the balance falls below this amount, you must deposit more cash into the account before continuing to trade.

Day trading can also have costly commissions and transfer fees. They can eat into your earnings unless you have high profits to cover the costs.

The practice requires split-second timing. It doesn’t suit people who are not in deciding and commitment.

It is an emotional practice compared to other trading types. You must control your emotions to succeed.

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How Does Day Trading Work

Day traders depend on stock and market fluctuation to earn profits. It is a volatile industry with price fluctuations. As a day trader, attune to events that cause short-term market movements. The ideal situation is to buy low and sell high while completing many sales on the same day.

You must capitalize on short-term price movement in stock by actively buying and selling shares. If the stocks might go higher, you buy and then sell them once the value goes up. However, you’ll lose money if the stock value drops and you sell them.

Day trading requires high liquid stocks that allow moving in and out of position without affecting the stock price. A day trader can buy a stock if it’s moving higher or sell it if it is moving lower. The focus is to profit on stocks fall. You can decide to short-sell a stock if you believe that it will take a nosedive that day.

A day trader will use technical analysis and trading strategy to make a profit in a short time. Experienced traders often use margin to increase their buying power. Therefore, it is possible to trade the same stock many times a day.

Is day trading legal?

Best Markets for Day Trading

Stocks, Forex, and cryptocurrencies are all excellent day trading markets. However, day trading is tough. You need to pick the perfect market that will give you a chance to make a profit. Essentially, focus on a single-day trading market at a time. Learn it and start producing consistent income from it. If you are wondering about the best day trading market, here is an analysis of the three best markets.

Forex

The forex market is the most liquid globally, with up to $15 trillion tradings, per day. It has the lowest news risk compared to other markets, as it doesn’t expect volatility. With several major characters to choose from, you can find great opportunities.

Forex is one of the best markets for new Traders. It doesn’t have the Pattern Day Trader rule. It has a 24-hour foreign exchange market with low commissions. If you choose Forex for day trading, consider markets that offer the best trading instruments. For example, the GBP/EUR is the best trading instrument.

Most people don’t have the $25000 to trade and get past the Pattern Day Trading Rules. Forex provides an opportunity to open an account with brokerages for just $1000 or even less. However, people fail because of improper money management.

Stocks

The more experienced day traders prefer stocks because they offer high volatility with the potential for big returns. There is also high leverage because of the price of underlying assets. However, stocks require more capital to trade compared to Forex.

For example, you need at least $25,000 to day trade stocks in the United States. It is usually the legal minimum for trading US stocks, which may vary when trading other stock markets.

Stocks have low liquidity security. However, it has high news risk with prices rising to extreme highs and then falling to extreme lows. They are successful Traders who trade stocks. You need experience and skills to succeed as a day trader on the stocks market.

Cryptocurrencies

Recently there has been a boom in cryptocurrency trading. We relate the Boom to high volatility and trading volume in cryptocurrencies that suit short-term day trading. Several cryptocurrency platforms offer liquidity.

Each of these day trading markets offers the same trading income potential. They also have ample opportunities to make a living. The only difference is the amount of capital required to enter each market. When choosing a market for day trading, consider liquidity, volatility, and news risks.

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How to Day Trade: Top 5 strategies

Day trading entails are executing intraday strategies based on price changes. You can use a variety of strategies and techniques to capitalize on the market inefficiencies.

1. Scalping

Scalping is a technique where you buy and sell an individual’s talk multiple times in the same day. Engage in helping to ensure you make a small profit over many short trades. It is a more manageable and easier technique to execute under pressure.

You should read and interpret the short-term stock charts, then decide based on these charts. The success of this strategy lies in spotting trends, anticipating upticks and downswings, and understanding the psychology behind the market.

2. News trading

This strategy involves trading based on market expectations. You need a certain skilled mindset to trade or news announcements because the news can travel quickly. For example, you must assess the news immediately and quickly judge how to trade it.

News trading is common in day trading. This technique entails knowing differences in market expectations and making a wise decision.

3. Range trading

Range trading is a strategy in day trading that entails understanding the history of security. When using this strategy, you start by looking at the price and volume of chatting. Identify the typical highs and lows during the day and the differences between the two prices. This information can help you buy low and sell high depending on the prices.

The order to sell goes in when prices rise when the order to buy goes in and tries faults. Experienced traders use stop and limit strategies to keep their trading in line. These strategies help limit your loss if the security drops below your entry point. You use range trading in a normal market with enough volatility.

4. Swing trading

Swing trading entails buying a security when you suspect that the market will rise. You also sell when you suspect the price will fall. The market requires trading both sides of the financial market movement. Swing Traders take advantage of the market oscillations as they monitor the back-and-forth price swings.

It is a technical approach to analyzing markets. You must study charts and evaluate the individual movements to comprise the big picture. Successful swing trading depends on interpreting the length of each swing as it defines the momentum. Identify if the momentum is increasing or decreasing within each swing while monitoring the trade.

5. Trend trading

Trend trading entails using technical analysis to define a trend. You only enter a trade based on the direction of a predetermined trend. You need to have a flexible view of where the market should go when defining a trend. The strategy entails using equities, currencies, and commodities to analyze specific markets.

You need an accurate system to determine the trend and the discipline to follow them. You must stay alert and adaptable as the trains can change quickly. However, trendsetters must know the risk of market reversals. The strategy suits people with limited time and offers many opportunities to enter and exit a trade.

Day trading is about maintaining focus and discipline at all times. Start with a market, stick with it, and build you a skill. When selecting a trading strategy, choose based on your risk tolerance, available capital, and level of discipline.

Learn More About the Best Indicators for Day Trading

Tips for a Successful Day Trading

There are day trading rules for beginners about this industry.

Manage Your Risks

Risk management is the Foundation of day trading. You must exercise excellent risk management skills to minimize losses and maximize profits. Day traders are not afraid of the stock market volatility in the short term. Instead, they take advantage of the volatility.

Think of day traders as risk managers who put capital at risk to make more money. If you miss managing any risk, you can have a hard time consistently making profits. You must maintain a good ratio of risk to reward

For instance, open a practice account at a brokerage firm before committing real money to day trading.

Work on your psychology

Day trading requires that you take emotion out of the trade. The practice comes with a high level of pressure and stress. Therefore, more people quit within the past two years of day trading because of the difficulties. You must adhere to strategies and exercise self-control.

Manage your psychology to avoid over-managing the position. Powerful emotions can negatively affect your trading. Therefore, make your decisions using login and not emotion. Trading with emotion can have a negative impact in the long run.

Choose your best time to trade

The most successful day traders have a predetermined entry and exit point. You must choose the perfect time to trade and avoid making mistakes. The decision comes down to how much capital you need. An experienced trader organizes patterns and picks appropriately to make a profit. Novices should read the market before making any moves.

Take breaks

Sometimes the stock market tests your nerves. During such moments, you need to take a break and stay cool to minimize the risks of losses. It’s important to focus on one or two stocks during a session. Taking breaks to allow you to track and find opportunities easier. You can also specify the smaller dollar amount to invest.

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How Much Do I Need

Before venturing into day trading, determine how much money you need. It is one of the most frequently asked questions for novice day traders. The money depends on the trading market and your trading style.

The correct amount of capital depends on the trader. Full-time day traders will require more money than side hustlers. Ask yourself how much you want to make per day and how much you have to start day trading.

Pattern Day Trader needs at least 25,000 dollars margin approval. These are FINRA restrictions in the US stock requiring a $25000 minimum equity requirement. However, you can trade with $500 in the Forex market and cryptocurrency.

Day Trading Beginner’s Guide

A day trade entails buying shares of a stock then selling the same day. Since you put more trades than the average investor, you should also keep your costs low. While this is a lucrative industry, it can be a little challenging for new Traders. If you are new to day trading, there are certain aspects you must put into consideration.

1. Choose a trustable broker

Choosing a trusted broker is one of the big decisions to make as a day trader. It is where you put all your money as you rely on them to provide fast executions. They are different stockbrokers serving a specific niche. When selecting a broker, look for their trade execution, commission, and chatting platform. For example, you need brokers with high-speed execution.

2. Market analysis

Before venturing into day trading, you need a sound knowledge of the industry and technical analysis. Day trading is a difficult skill it takes time to master. Your chances of making money as a day trader depends on how you can analyze the market. Attempting to trade without any training or education will cause disaster.

3. Choose your strategy

You also need a proven strategy that you have backtested. You can develop a profitable strategy or adopt a proven one. After mastering the strategy, you can put your spin on it to make a few changes. The idea is to have a specific setup or trading system that is comfortable when you trade. Implement your strategies precisely. Ensure you stick to one thing at the beginning instead of trying different strategies simultaneously.

4. Practice on demo

Start with a demo trading before moving to live when you. Demo trading is a good practice ground to determine if the strategy is viable. The strategy should mimic the actual market without creating the emotional turmoil of putting real money on the line. You only move to live trading if the demo trading makes you comfortable.

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Top 3 Brokers for Day Trading

You need a broker who will allow you to place multiple orders simultaneously. It’s important choosing the right broker. Different brokers for day trading provide varying incentives and budgets.

When choosing a day trading broker, you must consider the speed, reliability, and cost. A low-cost broker can help you make a lot of transactions.

In this review, we have reviews several online brokers for day trading. Here are three of the best day trading brokers you can find on the market. If you are a beginner day trader, you can use trading signals from the best providers.

Webull - Best for Stock Day Trading

Webull is an online brokerage that delivers an impressive array of tools for active day traders. It is a mobile-focused brokerage founded as a research platform. They have a slick interface for desktop and mobile apps.

This platform is perfect for the mobile-first generation of casual investors. It has millions of users since it is accessible to everyone. Webull doesn’t have commission fees on stock trading. You can trade with this platform because it has no risk. The platform allows clients to buy and sell the same security within the same day on its app.

The advantages of Webull brokers are the cost and an easy-to-use platform. They also have advanced tools that access real-time market data, including analyst ratings and financial calendars. You will also get access to cryptocurrency.

Binance for Crypto Day Trading

Open an account
Your capital is at risk.

Binance is popular among cryptocurrency traders for its large trading volume. It uses the matching engine and wallet technologies. It has a robust traded volume per quarter and operates the exchange-listed on a stock exchange.

This platform suits both novices and experienced traders. It is easy to use and highly trusted. The platform also has low instant-buy fees and offers several trading pairs. It offers supporting escrow services for the peer-to-peer trading market. You can buy and sell crypto in local currency.

IG - best for Forex Day Trading

This broker has allowed day traders to invest in an array of instruments on a global scale. It offers traders the package of excellent trade and research tools. You will get industry-leading education, competitive pricing, and an extensive list of tradable products. The platform uses its size to provide day traders competitive pricing across the board.

Overall, this is the best broker for Forex day trading with a fantastic all-around experience. It is a safe and low-risk broker for Forex trading. It also ranks as the most trusted Forex broker in 2023. It offers MetaTrader Buffering professional trading, mobile trading, and education.

Summary

A day trader will enter and exit trades multiple times, depending on the stock price. They focus on capturing profit from short-term price movements in assets such as bonds, stocks, and exchange-traded funds. Closing positions during the day helps avoid the risk of holding market positions open overnight.

Day trading is profitable when properly. However, novices who lack a brilliant strategist can struggle. If you are interested in this business, you must gain valuable skills and knowledge. For example, you must learn how to minimize risk and maximize profits.

While you can’t learn everything about day trading in a day, this article can help you learn about day trading to make profits. You need a long learning commitment to succeed in this industry. It is because new strategies emerge every time, helping Traders to increase their profits.

FAQs

Is day trading worth it?

It is much more difficult to succeed in day trading in today’s market. The hedge funds run sophisticated algorithms that increase the difficulty. Day traders are severely undercapitalized. They have to pay for expensive chartroom memberships, educational courses, and newsletter subscriptions. However, with experience in day trading, you can make good profit.

Is day trading illegal?

Day trading is allowed in the United States. However, you must have at least a $25,000 minimum account balance to become a Pattern Day Trader. Every trader must strive to get approval as a Pattern Day Trader. Once classified as a PDT, you get access to a 4:1 margin intraday.

What are the risks of day trading?

Since you have to buy and sell using borrowed capital, it is inherently risky. Like poker, you can lose vast amounts of money. Each day traders must take undisciplined risks to earn profit.

Can you day trade on multiple platforms?

It is possible to trade on multiple platforms.
Most day traders have multiple brokerage accounts and use several trading platforms simultaneously.

Can you start day trading with $500?

While you can trade with $500 a day, your account can become restricted over a short time. For instance, you can only place four-day trades over five days before your account becomes restricted. Pattern Day Trader needs at least 25,000 dollars margin approval. Therefore, you can only trade with $500 in the Forex market. In the stock, you need to meet the paid $25000 minimum equity requirement.

Team that worked on the article

Jose Antonio Gastelum
Jose Antonio Gastelum
Developmental Spanish Editor

A professional English-Spanish translator, writer, proofreader, transcriber. Jose Antonio Gastelum offers his services for website content, blogs, research papers, documents, books and manuals about technology, finance, investment, tourism and insurance. In addition, he has some experience in web and app development, content marketing and SEO optimization.

His motto is: Hard work produces luck and success.

Olga Shendetskaya
Author and editor at Traders Union

Olga Shendetskaya has been a part of the Traders Union team as an author, editor and proofreader since 2017. Since 2020, Shendetskaya has been the assistant chief editor of the website of Traders Union, an international association of traders. She has over 10 years of experience of working with economic and financial texts. In the period of 2017-2020, Olga has worked as a journalist and editor of laftNews news agency, economic and financial news sections. At the moment, Olga is a part of the team of top industry experts involved in creation of educational articles in finance and investment, overseeing their writing and publication on the Traders Union website.

Olga has extensive experience in writing and editing articles about the specifics of working in the Forex market, cryptocurrency market, stock exchanges and also in the segment of financial investment in general. This level of expertise allows Olga to create unique and comprehensive articles, describing complex investment mechanisms in a simple and accessible way for traders of any level.

Olga’s motto: Do well and you’ll be well!

Mirjan Hipolito
Cryptocurrency and stock expert

Mirjan Hipolito is a journalist and news editor at Traders Union. She is an expert crypto writer with five years of experience in the financial markets. Her specialties are daily market news, price predictions, and Initial Coin Offerings (ICO). Mirjan is a cryptocurrency and stock trader. This deep understanding of the finance sector allows her to create informative and engaging content that helps readers easily navigate the complexities of the crypto world.