Top steps to become a day trader

Step 1. Want to Become a Day Trader? Consider Limitations At First

Before you become a day trader, you should know all of the limitations imposed on you — especially if you’re in the United States. The financial markets are heavily regulated by governments all over the world, and with good reason; there’s a lot of volatility involved with day trading.

For instance, a pattern day trader (one that trades more than four times over five business days) is subjected to a minimum equity requirement for each day of trading — and it’s $25,000. If you want to perform any day-trading activities, this amount must be deposited and maintained in your account at all times. However, you can meet this minimum equity requirement with more than cash — you can also combine eligible securities.

Step 3. Choose Your Day Trading Platform

Before you start day trading, you’ll need to pick the right day trading platform. There are plenty of options out there, with varying degrees of trading software speed and agreeable fees.
Make sure you do your due diligence before making a choice — though we’ve outlined their stock fees, option fees, and paper-trading features below to make it easier:

Step 5. Test Your Strategy on Demo Account

After spending tons of time learning all the ins and outs of day trading and the financial markets, you’re probably eager to put your knowledge to the test. And while it’s important to try out all of the strategies you’ve been reading about — it’s also equally crucial to avoid risk, and not to play with your money.

That’s why it’s imperative that you use a demo account when you first start out that lets you practice trading with virtual money. As a result, you don’t incur any of the risks you’d have if you were using a live, funded account.

How to Become a Day Trader — 5 Basic Rules

All of the info we’ve given you above is a good jumping-off point for anyone interested in day trading. However, before you fully commit to this as your primary source of income — you need to learn some of the basic rules and tips to keep in mind throughout your trading.

1. Is Day Trading a Good Idea for Me?

Before you go any further, you need to do some much-needed self-assessment. In other words — you need to be sure that day trading is the right field to go into, specifically for you. As you might have realized by now, successful day trading isn’t something everyone can do; it takes a specific combination of traits, skills, and knowledge — and a willingness to commit.

Do you have any financial knowledge, and how good are you with numbers and mathematical analysis? Are you adept at behavioral psychology, and do you understand how other market players think? Most importantly — do you have the guts for risky entrepreneurship?

We’re not trying to scare you off, far from it — but we feel the need to dispel the pop-culture notions of day trading being easy money or an easy life. In reality, working as a day trader means long working hours, self-learning with little guidance from others, and a lot of risk-taking.

However, if you’re smart, committed, and eager to learn: the sky's the limit.

2. Develop and Maintain Your Risk Management Rules

Yes, we’ll reiterate this once again — as a day trader, risk management is your #1 job. And there are plenty of strategies for risk management out there; you need to learn them and apply them to various market conditions every day.

However, it all boils down to the three E’s — enter, exit, and escape.

For every trade, you need to know your enter price, your desired exit price, and a contingency escape price for worst-case scenarios. And this is important for a reason — we’ve already mentioned how important it is to act methodically and rationally.

As a day trader, you’re not looking at the long “buy and hold” game — you’re trying to make a profit from quick daily price fluctuations. So, you need to know when you want to get in, when you plan on getting out, and how to act when things don’t go as planned.

And if you want to minimize your losses, knowing when to escape a trade is absolutely essential.

3. Avoid Extreme Volatility

Before you get into day trading, you’ll probably hear plenty of wild success stories of risky bets that paid off in volatile markets. And while these can be a great motivator of success — it’s imperative to avoid trying stunts like that with your own money.

Avoid acting on obscure, risky tips — or on specific tips in general, as these rarely pan out. And avoid trading during periods of market panic, like the first 15 minutes of action during trading hours.

4. Don’t Rely on Leverage

Relying on leverage is tempting, especially for novice traders who are looking to make a lot of money fast — and that’s precisely why you should avoid it. As a day trader, you’re definitely looking at the short game, but that doesn’t mean you shouldn’t think long-term. You need to try making consistent profits each day, rather than trying to make a huge splash and striking out every time.

Remember that, while leverage increases your wins — it also magnifies your losses. You’re borrowing money from your broker to finance leveraged trades, and that’s a risky proposition we don’t recommend for beginners.

5. Don’t Overtrade

Overtrading is just what it sounds like — excessive trading in a specific time frame. As an individual trader, you should make some rules about how much risk you’re taking on during a given week or a day — that will dictate how many trades it’s appropriate for you to make. After this limit has been hit, you’d be acting unsoundly if you were to continue trading.

Importantly — this kind of behavior isn’t regulated by any broker or financial authority; no one is going to tell you to stop putting your money out there. However, it’s still important to have a steady trade volume; especially when you’re a newbie who’s simultaneously inexperienced and eager.