People prefer different trading styles depending on their skills, experience, and goals. Individuals who want to capitalize on short-term trends and price fluctuations often choose day trading (intraday trading) as their trading style.
Today, anyone with a laptop and an active internet connection can become a day trader. But what is day-trading, and what are its advantages? If you are a beginner and want to learn more about the daily trading stock market, you have come to the right place.
In this article, we have included the important details you need to know about day trading. We will discuss what it is, its advantages and disadvantages, the best strategies for day traders, and more.
Read this article carefully till the end to start your journey on the right note.
What Is Day-Trading?
The act of buying and selling stocks within the same trading day is called day trading. Traders following this approach rely on price movements during the day. They open and close positions multiple times a day to book their profits.
Their goal is not to make huge profits from a single trade, and they try to make small profits multiple times during a trading day.
A day trader holds a stock for a few minutes to hours and sells it when it reaches the target price. Technical analysis is an important part of day trading. In the following article, we will share some tips to help you start the right way.
Day Trading Tips: How to Get Started?
Risk the money you can afford to lose
Every trader wants to make money, and having a positive mindset is important. However, it doesn’t mean you should start trading without analyzing the involved risks.
To stay safe, you should only risk the money you can afford to lose. This way, even if you lose more money than expected, you will have a financial cushion, and you can easily meet your monthly expenses.
Risk a fixed percentage of your funds per trade
Setting aside funds for trading isn’t enough. You should also set a fixed percentage of your funds that you are willing to risk per trade.
If you risk 100% of your trading fund and things don’t go as planned, you can get in trouble. However, if you risk 1%-2% of your funds or less per trade, you will always have a chance to make a comeback.
Invest the time and effort day trading demands
As mentioned above, day trading is a demanding profession, and you will have to put in the required effort and time to be successful. Many opportunities present themselves during trading hours, and you will have to spot them. Moreover, you will have to analyze market trends and price movements to make the right moves.
You should invest a few hours every day and do the required analysis and calculations before making any move. You will also have to stay active and act quickly in some situations.
If you have a busy schedule and can’t spare even an hour, it will be challenging for you to be successful as a day trader.
Know what to buy
As a day trader, you should know what to buy. You will have many stocks to choose from, but when you make a decision, consider these three important factors:
- Liquidity
- Volatility
- Trading volume.
You should be able to buy and sell the stock easily, and this is where liquidity comes in. High volatility is linked with high profit and loss potential. Trading volume can help you determine how interested people are in a given stock.
These three factors should always be a part of your research process, and you should check the numbers carefully before executing a trader.
Start small
When you start trading, it’s easy to get carried away. If you don’t have any experience in the field, there is no point in going big, as the risk will be too high.
You should start slow and trade only a few stocks during a session in the first few days. If you have limited funds, you can start trading fractional shares.
Set realistic goals
You should always have a goal when you jump into the stock market, but you shouldn’t have unrealistic expectations. Most overnight success stories are misleading, and unreliable companies/brokers use them to trick people.
The best option is to have daily, weekly, monthly, and yearly goals. Based on your short and long-term goals, you should choose a strategy that offers the right risk-to-reward ratio and suits your requirements.
Have a plan and stick to it
People often get carried away when they make a profit and end up moving too fast. This is a big mistake, and sticking to the long-term plan is the right approach.
You shouldn’t let emotions and personal bias get in your way. Also, you shouldn't abandon your strategy because of a small profit or loss.
Understand the importance of limit orders
A limit order is an important tool for traders, and beginners should understand its importance. It guarantees the desired price, but the execution isn’t guaranteed, which means if the stock price doesn’t reach the chosen price, you will maintain your position. They can help traders cut losses and feel more confident.
You should follow these tips when starting your journey as a day trader. Now, let’s discuss the advantages and disadvantages of the daily trading stock market.
Advantages of Day Trading
No overnight risks
Day traders, as mentioned above, close their trading positions before the end of the trading day, so they don’t have to worry about overnight or weekend market risks. An overnight financial market crisis or fall in stock price won’t wipe out their profits.
Every day is a fresh start for them, and a sudden price drop at the beginning of a trading day doesn’t concern them.
Money doesn’t get tied down
In the stock market, it’s easy to get your money stuck in one asset. Such situations can be uncomfortable for people, especially when they don’t have budget issues.
Long-term investors often face such issues when a stock price falls significantly, but day traders don’t have to worry, as they close their positions every day.
Since they open and close multiple positions every day, their money doesn’t get stuck in one asset for longer periods.
Market conditions don’t concern day traders
Long-term investors suffer during bad market conditions like bear markets, and the falling prices of their assets often keep them awake at night. They keep waiting for entry points, and many fail while trying to hit the bottom. On the other hand, day traders don’t have to worry about such issues.
Day traders can keep doing their job and make profits even in bad market conditions, which helps them stay active throughout the economic cycle. Since long-term fluctuations don’t affect them, they open and close their positions every day.
Day traders can make money fast
Stock prices don’t usually skyrocket overnight, and even when they do, sudden stock price increases are often followed by downward movements. As a result, long-term investors have to stay patient to make considerable profits.
However, things are different when we talk about day traders, as they aren’t concerned about long-term price movements.
Day traders are concerned about price movements on a given trading day, and they can make small profits multiple times a day. These small profits add up over time, and traders are rewarded. Also, traders can reinvest the small profits and make more money in the long run.
Disadvantages of Day Trading
High risk
Do all traders make a profit? Unfortunately, the answer is no, as trading can never be 100% risk-free. If things don’t go your way, you can close your positions with a loss multiple days in a row. When these small losses add up, they result in large losses. You should always invest the money you can afford to lose.
Trade commissions
Beginners often forget to count trade commissions while calculating their profits, which is a big mistake. Day traders usually execute multiple trades each day, and even if they pay a small commission per trade, they will end up paying a significant amount. Traders who make small profits suffer even more.
Time, effort, and stress
Time, effort, and stress are big parts of day trading. If you are planning to be a full-time day trader, you should know that it’s a highly demanding profession. You will have to pay attention to daily trends, activities, and price movements, and your social life may be affected, especially in the beginning.
Now that you know the advantages and disadvantages of the daily trading stock market, you must be interested in jumping in and starting your journey as a trader.
In the following section, we will discuss the best strategies you can follow as a day trader.
Best Day Trading Strategies
Scalping
Scalping can be very profitable for day traders, especially if they use it as the primary strategy. Traders following this strategy buy and sell an individual stock multiple times during a trading day, and their goal is not to make huge profits from a single trade. They try to make small profits multiple times during a trading day.
Pullback trading
Pullback trading is one of the best and most profitable strategies for day traders. A pullback presents an entry point for day traders, and they get a chance to exploit the situation.
When stock prices are on a downtrend or uptrend, they often make small moves in the opposite direction, and this is where traders see an opportunity to make profits. After a brief rebound or correction, the major trend resumes.
Trading the news
Traders have to invest a lot of time and effort to follow this strategy, but it can be highly profitable. As the name suggests, traders have to stay active and follow the news regularly.
When there’s good news, traders can find an entry point, but it’s important to have a sell target before jumping in. When there’s bad news, stock prices can fall, and traders can also find an entry point in such situations.
Momentum trading
Momentum trading is a form of trading and not investing. It involves high-risk and high-profit opportunities. This strategy is easy to follow and suitable for beginners too.
To be successful with this strategy, you will have to find stocks that have moved in the last few days/weeks. Once you find such stocks, you can ride the trend as long as there are no signs of a reversal.
Daily pivots
Volatility is a big part of the stock market, and day traders can use it to make profits. You just have to attempt to buy stocks at the day’s low and sell at the day’s high to book your profit. You should close your position if you see signs of a reversal.
Well, these are the best day trading strategies beginners can follow. Like any other strategy, they don’t guarantee a profit, but they are easy to learn and execute, and traders won’t need professional help to learn them.
You can also follow any other strategy that works for you, as options aren’t limited to the mentioned strategies.
Daily Trading Stock Market: Risk vs. Reward
When we talk about trading and investing, risk is always involved. Nevertheless, the risk-to-reward ratio should be appealing. In the case of day trading, the risk is high, but traders can also make a profit multiple times each day.
Even if the profits are small, they will add up throughout the day, and the trader will have more money at the beginning of the next trading day than the previous day. However, it also means the losses can add up over time, and traders can get in trouble if they don’t manage risk.
As we mentioned above, you can cut losses with limit orders, and they can help you trade more confidently. You can become a successful day trader with the right strategy and mindset.
Day trading, without a doubt, is a great trading style in the stock market, and it can help you make a good profit over a time period. However, there are many other options you can go for.
For instance, options trading is another popular option among traders. If you are a beginner interested in options trading, going for an options-picking service can be a good option. For example, the Foolproof Options service.
More about Foolproof Options
Foolproof Options has received a positive response from users, and it’s currently one of the best and most reliable options for traders. While using this service, you won’t have to worry about misleading information, false claims, or hidden charges.
As a user, you will receive 3 trade alerts per week, a full trade plan, and guidance. It’s a fairly-priced service, and you will get a 200% money-back guarantee. Moreover, you can have a 14-day free trial, which is an added benefit.
Overall, you will have a worry-free experience with this service, as you can opt-out anytime.
Conclusion
Each trading style has its pros and cons, and the same is true with day trading. If you have read this article carefully, you will be aware of the advantages, disadvantages, risks involved, potential profit opportunities, and strategies of the daily trading stock market.
It won’t be unfair to say that day trading is one of the best trading styles, and traders who have a solid strategy and execute it the right way get rewarded.
You shouldn’t start trading without doing research, and you should do risk management too. You can also opt-in for paid tutorials, courses, or services. As you gain experience in the field, it will become easy for you to create a strategy that works best for you.