All About Day Trading | Finance de Demain

A day trader is a market operator who engages in day trading. A day trader buys and subsequently sells financial instruments such as stocks, currencies, or futures and options within the same trading day, meaning that all positions he creates are closed on the same trading day. A successful day trader should know about which stocks to trade, when to enter a transaction and when to exit it. Day trading is growing in popularity as more and more people seek financial freedom and the ability to live their lives as they please.

It takes time and dedication to learn the intricacies of this fast-paced world of day trading. But with the right information and careful planning, you can put yourself in a position to earn a good living. In this detailed guide, I'll dive deep into the world of day trading and demystify what we actually do and how you can get started. But before you start, here is a complete trading education for you. Let's go

What is Day Trading?

Day trading is a speculative trading style that involves opening and closing a position on the same day. Quick example: if you open a new position at 10:00 a.m. and close it at 14:00 p.m. on the same day, you have completed a day trade. If you were to close this same position the next morning, this would no longer be considered a Day Trade.

The day traders, or active traders, typically use technical analysis and trading strategy to try to make profits over a short period of time and will often use margin to increase buying power. A successful day trader doesn't just pick any stock and try to trade it. There has to be some sort of strategy involved in the rules and parameters of money management.

Day Trader Goals

The main objective of a day trader is to profit from small price movements of highly liquid stocks. The more volatile the market, the more favorable the conditions are for a day trader. A day trader must have good knowledge of the stocks, the tools used and also the right platform to trade. A day trader makes profits by making the difference between the bid and ask price. Detecting an imminent move in a particular stock in either direction, a day trader would buy or sell it above or below the bid or ask price.

There are two types of day traders: those who trade individually and those who work with a financial institution. A day trader who works individually often manages other people's money or uses his own money, but the limited scope of resources often prevents him from competing with the day trader who works with a firm.

Day traders typically hold their securities for a single day and their trading style is very different from real-time investors. They close out their positions at the end of each day. Due to the short-term nature of day trading, there is less risk as there is no chance that something will happen overnight to cause a big loss.

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How does day trading work?

Day trading works by capitalizing on short-term price movements of a stock through active buying and selling of stocks. Day traders look for volatility in the market. Without short-term price movement (volatility), there is no opportunity. The higher a stock moves, the more profit a trader can make or lose in a single trade.

This is why traders must exercise excellent risk management skills in order to keep losers small while letting winners run. You can think of day traders as risk managers. We put capital at risk in order to try to make more money, but if we manage our risks poorly, we will have a hard time making money consistently. Successful traders will often have predetermined entry and exit points before they even enter the trade.

This helps remove emotion from the trade, which in turn prevents the trader from freezing their position (this has been proven to have a long term negative impact).

What you need before you start day trading

Before you start day trading with real money, there are three things you need to do and have:

Solid knowledge of day trading terminology and technical analysis
A strategy that has proven itself and proven profitable
Proof of profitability in a day trading simulator

#1 – Solid knowledge of day trading terminology and technical analysis

With years of day trading under my belt, I can confidently say that day trading is an extremely difficult skill to master, let alone master.

You can think of day trading as a professional sport. Your ability to make money is based on 100% on your capacity to perform day in and day out. Trying to day trade without any training or education is a recipe for disaster and loss of capital. The first step to learning day trading terminology and technical analysis is to read books and watch videos! It is the process of acquiring knowledge. But remember, just because you read a book about skydiving doesn't mean you're ready to jump out of a plane!

One of the challenges of learning to trade is the overwhelming amount of information available. Often times, the things you learn will be contradictory. The reason for this is that technical analysis or entry and exit requirements that work for one strategy may not work at all for another strategy. It is not helpful to your long-term success to learn a little bit of 100 different strategies. It is best to learn as much as possible about a strategy that has proven to be profitable. So while you are looking at what you are going to learn, it is always important to ask yourself, is this person actually profitable?

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#2 – Develop a profitable day trading strategy or adopt a proven day trading strategy

It took me about 2 years to develop the strategy that I trade. As as a budding trader, you have two choices. You can either adopt a strategy that is already actively traded by other traders, or you can create your own. If you create your own, be prepared to spend months, if not years, testing and refining before you can trade with real money.

Most beginner traders, rather than trying to reinvent the wheel, decide to master a strategy that has already proven profitable. After mastering this strategy, traders may decide to put their own spin on it by making a few modifications.

Regardless of your approach, it’s important to have a specific setup, trading system, or methodology that you’re comfortable with when you start trading. This allows you to develop a skill in something, rather than trying to find opportunities for multiple setups at once, never really becoming good at one setup.

#3 – Convert knowledge into skills by practicing in a day trading simulator

You may have taken a few quality trading courses, read a book or two, looked at our daily trading analyses, and feel ready to trade. But the reality is, you probably aren’t ready. Novice day traders notoriously overestimate their abilities, start trading with real money, and lose.

Intellectually understanding day trading and being able to react to opportunities and execute them effectively in real time are two different things. That’s where practice comes in.

Day trading tools

What you will need to start day trading:

Online broker
Scanners
Mapping platform

Best broker for day trading

Your broker is one of the most important decisions you will make. This is where all your money will be and you will be counting on them to provide fast executions at a reasonable price. There are several types of stock brokers, and most tend to serve a specific niche. For example, Vanguard serves passive investors, tastytrade serves options traders and Lightspeed serves day traders. Here are the brokers our mentors use:

Ross – LightSpeed, TD Ameritrade and CMEG (Small Account Challenge)
Mike – LightSpeed
Roberto – LightSpeed

For day trading, here are our favorite brokers:

Warrior Trading
TDAmeritrade
Capital Markets Elite Group (CMEG)

There are few things you need to consider when looking for a broker: trade execution, commissions, charting platform.

Inventory Scanner

There is a distinct difference between a stock scanner and a stock filter:

Stock scanners constantly scan the market and broadcast the results in real time
Action filters simply search the market for criteria that provide you with a static list of stocks, usually with yesterday's data

A good stock scanner is a must for most day traders, especially those who trade on very short time frames. Most scanners can scan on time frames as short as ticks and up to weeks, while updating results in real time.

How to start day trading?

Once you have learned a strategy and are trading it profitably in a simulator, you can now start considering trading on a live account. Here are the steps you will need to follow:

Open a brokerage account and transfer money in
Have a written trading plan that you can review every morning
Do your watch list in the morning
Redeem your plan and stick to it
Review your transactions at the end of the day

One of the biggest pieces of advice we can offer new live account traders is to take it slow. Don’t dive in head first and trade the maximum size. Ease of entry until you are comfortable. Live account trading adds a lot more emotion and pressure to your trading, which will lessen as you gain more experience. Plus, you don’t want to blow your account and lose all your money on the first day!

Day trading strategies for beginners

There are many different strategies to choose from, but the one we have had the most success with and find easiest for new traders to learn is the bullish flag. A bull flag pattern is a high probability setup that forms a pattern that resembles a flag on the chart. Below is an example of a defined flag pattern. Some characteristics to look for when trading a bull flag: