What Is Day Trading?
Day trading (DT) is often defined as “buying and selling of a security within a single trading day.” If you day trade online, this means that you will complete all your market transactions for that day before the markets close. This is how you make sure you’ve made a profit. You may also start and finish multiple transactions within each trading period.
It’s important to note that the exact definition of a “day trader” varies among brokerages. However, those definitions are usually based on a specific “trading limit” or number of trades that can be executed during a period of time. That can also vary from:
trades per day…
trades per month…
trades per year…
To further clarify these definitions for high volume clients, some brokerages even refer to ‘hyperactive’ day traders – a step beyond the standard day trader.’
Even though these definitions can vary widely, DT usually indicates the use of trading strategies that maximize small price movements in high-liquidity stocks or currencies. From Commodities to Crypto, this article will provide you with an introduction to day trading and how you can participate in this trillion dollar industry.
What is traded?
The six main areas that are the most lucrative for day trading are:
Forex – The foreign exchange currency market (FOREX) is the most popular and most liquid market in the world. When day trading in the forex market, you’ll be trading currencies, such as the Euro, .U.S. dollar, and GBP. Read more about forex trading here.
One of the major reasons Forex is so popular is because it is one of the largest markets in the world. More trades are made in Forex on a daily basis than almost any other market worldwide. Each Forex pair provides multiple opportunities for short-term trading. Plus, Forex is currency, which provides a speed of trade and liquidity that is unmatched. This speed dramatically increases a trader’s ability to open and close transactions quickly and repeatedly throughout the day. Beyond that, Forex isn’t bound by the rules or timeframes of a single market. That means trading is available 24 hours a day, six days a week. The simplicity and flexibility of Forex also presents an attractive option for beginning traders.
Stock – There are many ways to trade stocks, including stock options, futures, physical stocks, and ETFs. If you are DT on the S&P 500, you’ll buy and sell the shares of publicly traded companies like Starbucks and Adobe. The best platform for this kind of trades is Plus500. You can read the full review of Plus500 in this article.
ETF (often called Index Funds) stands for “Exchange Traded Fund.” These funds trade just like a regular single stock but are actually groups of stocks from multiple companies. While index funds frequently occur in financial advice these days, they are slow financial vehicles. That generally makes them unsuitable for day traders. (They are, however, fantastic for value investing).
The DT of single stocks requires different tools and techniques from “value investing” strategies. For example, traders can speculate on stock prices using CFDs allows experienced traders to profit even from falling prices. Another technique uses leverage (or specific types of borrowed money) to increase a trader’s options and power when beginning a trade. One significant benefit of DT in stocks is that you can take advantage of the natural fluctuations caused by news releases, product announcements, or financial reports.
Cryptocurrencies – It’s difficult to avoid hearing about the latest news about cryptocurrency because it has the potential fundamentally change the market systems worldwide. For now, however, that hasn’t happened, and popular coins like Bitcoin and Etherum are little more than the financial vehicle of the moment. There has been mind-bending growth in the crypto area, and thousands of new investors have flocked to it. Brokerages see the potential and interest in crypto and are in the process of ensuring reliable access to this new market. It is becoming easier to participate in these blockchain based currencies every day, and many of the previous roadblocks have been removed. Based on past events, it seems like this is the best time to get in the crypto market.
DT in Bitcoin, LiteCoin, Ethereum, or the many other altcoin currencies may be an exciting adventure for some day traders. While it’s future is uncertain, its current volatile nature allows for unprecedented returns. One of the best platforms to trade cryptocurrencies is eToro. You can read the full review of the eToro platform in this article. Etoro is best known for its social trading features which enables them to copy a trading strategy from a different broker.
Binary Options – With binary options now being offered by most significant brands and brokerages, the only real concern is whether the security will go up in price or not. One of the most trusted binary options brokers is IQ Options. You can read the review of IQ Options in this article.
One of the main benefits of binary options is that they are simple, as the returns (and timing) are known before the trade is placed. Beyond that, the potential loss is controlled by the size of the trade. Binary options are a distinct means of trading and are often a part of the portfolio of most day traders. You can read more about binary options here.
Futures – The futures market allows you to buy and sell anything from coffee to silver based on the future price of those securities.
Commodities – Commodities are the “stuff” of life: gold, oil, cocoa, natural gas, and corn are examples.
Learn more about trading in different markets
Today, traders have an incredible wealth of information through courses, apps, and trader academies. This has caused a flood of beginner traders to enter the market with their new found skills. The purpose of (https://www.business24-7.ae) is to help beginner traders get educated and avoid the expensive mistakes that many people make.
Starting With Day Trading
Step 1 – Practice trading Forex or stocks with a live demo account. This allows you to take learn and simulate real-life trading without the risk of losing real money. This also provides experiential training on how to choose your stocks.
This also means you should spend less time in front of your T.V. and more time reading financial books, magazines, and online resources. This will accelerate your mastery of the strategies involved in the complex world of trading. (MyCoolWebsite!) is the perfect beginners resource to DT online.
Beginning Trader Books
‘Day Trading for Dummies’ – Ann Logue
‘Day trading and swing trading the currency market’ – Kathy Lein
These two books present the basic rules of DT. Creative ideas on strategy plus tips and sock advice will benefit you greatly.
While the beginner books are a great place to start, you should quickly deepen your knowledge of trading by reading a wide variety of other DT books.
Technical Analysis and Patterns
DT chart patterns help you understand and decode the trading activity seen in the raw data. It also helps with inferring the motivations of buyers and sellers in a particular market.
The charts might indicate that the S&P 500 is signaling volatility in the near future. This is invaluable information when attempting to predict the price movements during a day.
Reversals and continuations are very common trading chart patterns that you should learn. Reversals indicate that a trend will reverse itself after the cycle is complete and continuations mean that the trend will not reverse – at least not in the foreseeable future. There are many visual ways to interpret these trading patterns such as ‘wedges,’ ‘head and shoulders,’ ‘triangles,’ ‘cup and handle’ and plenty more. Understand each of these patterns will help you follow standard trading strategies and help you make better trading decisions.
Strategies for Day Trading
Websites like Reddit show you many inexperienced traders who skip the vital step of learning strategy. This causes them to constantly lose money. Experienced traders follow the strategies that have been established by the best traders in the world. When trading in Forex, they use Forex strategies. When buying in cocoa futures, they follow the cocoa futures strategies. Whatever the market, successful traders consistently apply the strategies that apply to that market. This gives them an advantage over other traders in any market. The edge might be small, but it is the single determining factor between success and failure for day traders.
All of the many strategies and techniques out there rely on data – lots of data. However, that data has to be interpreted and placed in charts, tables, and spreadsheets for it to be useful. Some common data sources are trading zones, arbitrage trading, swing trading, scalping, trading in volume, and utilizing news.
The day traders who consistently focus on and follow proven trading strategies also consistently outperform traders who don’t.
Accounts for Trading
To start day trading, you need to set up a trading account. Find one that suits your needs and goals for day trading by evaluating the options that each account type offers.
Cash account – Cash accounts are one way to start day trading. Trading with these accounts (sometimes called trading “without margin”) restricts your ability to trade by the amount of money you have in your account. The main drawback here is that your potential profits are limited. In contrast, the primary benefit is that it is difficult for you to lose more money than you can afford.
Margin account – You can borrow money from your broker using a margin account. There are more rules to follow with these accounts, and the risks are higher, but your potential for profit is also much higher. This is NOT a good option for most beginning traders. In the majority of situations, you are required to deposit a minimum investment to start trading on margin. There is also the risk of a margin call, where the brokerage requires a large upfront deposit to protect itself from potential loss.
More information about account options such as cash and margin accounts can be found at the broker’s list. If you feel better letting your money be traded by a full time trader, than we can highly recommend you to check out the managed forex accounts options.
If you want to understand the world of day trading, you need to learn a whole lot of unique vocabulary and jargon. You can find a mini-glossary of basic trading vocabulary.
- Leverage rate – the rate that your broker will increase the margin above your deposit
- Automated trading program – a program that automatically enters and exits a trade based on a set of rules or criteria. These are sometimes called bots, robots, or algorithmic trading systems.
- Initial Public Offering (IPO) – an IPO is the percentage of a company that is sold and the price of a share of that company when the company is first moved into the public sector for trading.
- Float – the number of shares that can be traded. For example, if a company has 15,000 shares in its IPO, the float would be 15,000.
- Beta – a data point that identifies a relationship between particular security against the changes in a market.
- Penny Stocks – stocks that trade below $5/share.
- Profit/Loss ratio – a percentage of the ability of a system to generate profit vs. loss.
- Entry points – the price of the security when you buy it.
- Exit points – the price of the security when you sell it.
- Bull/Bullish – positive. For example, if you are bullish on a particular stock, you think the price of that stock will go up.
- Bear/Bearish – negative. For example, if you are bearish on a stock, you think you think the price of that stock will go down.
- Market trends – the general direction of a market. For example, when the price of a security is going up, it has a positive market trend. When the price of that same security is going down, it has a negative market trend.
- Hotkeys – unique keyboard combinations that allow for entering and exiting a trade with a single keystroke. These are ideal when you are in a negative position, and you need to exit rapidly.
Graphs, Patterns, Charts, Strategy
- Support level – the lowest a price can go. This is usually because the demand for a particular security is strong enough that the price is prevented from passing it.
- Moving Averages – averages of the movement of particular securities over a specific period of time. Moving averages are vital signals for either buying or selling. For example, they can indicate whether a trend upward or downward is still in motion.
- Relative Strength Index (RSI) – The RSI compares gains and losses over time. It also measures the change and speed of a security’s price movements. In practicality, this index helps you to avoid oversold and overbought securities so that you can avoid obvious drops in price.
- Moving Average Convergence Divergence (MACD) – The MACD is a technical indicator that calculates the difference between the moving averages of a security. MACD offers clear signals for buying and selling and is very useful for beginning traders.
- Bollinger Bands – These Bands measure a stock’s ‘low’ and ‘high’ price relative to previous trades. Bollinger Bands help establish consistent trading decision based on patterns found in the real data.
- Vix – VIX is the symbol for the Chicago Board Options Exchange (CBOE) ticker. It indicates what the volatility is expected to be over the next 30 days.
- Stochastics – Stochastic is the current closing price related to a broader price range extended over time.
This method is useful when attempting to predict if prices are going to change.
A Comparison Of Day Trading And Its Alternatives
Day trading is probably the most common, but there are other options, such as traditional investing, automation, and swing trading.
Continue reading to learn more about each one.
Swing trading – This is a form of extended day trading where the buy and sell positions of the traders is played over several days or even weeks. Swing trading can help traders diversify their portfolios.
Traditional investing – Investing in its traditional sense plays the “long game.” This means that securities are purchased with the intention of holding them for extended periods of time based on specific criteria. Often, traditional investors put their money into more stable assets such as bonds, real estate, and stocks. The intention is that these asset types tend to increase in value over time. Intelligent investors always have some long-term investments because they balance other more volatile forms of trading. However, long-term investments often take years or even decades to provide tangible returns. For those looking to generate money quickly, traditional investing should be part of your strategy, but it cannot be your only strategy.
Robo-advisors – This is an automated form of traditional investing. The algorithms mentioned above are analyzed by a computer system provide investing suggestions to individuals based on their investing profile. An investing profile is based on many factors, including age, risk tolerance, and time frame. Robo-advisors are also too slow for day trading.
Long-term investing and day trading are different ways to invest your money. Both require strategies, but the strategies are very different. Before choosing one, evaluate your risk tolerance, the amount of time you’re willing to dedicate, and how fast you want to generate returns.
Again, successful traders make daily trades and invest for the long term.
Supporting Yourself With Day Trading
Are you looking to quit your job and become a fulltime day trader? Then you should know that the shift from part-time enthusiast to fulltime professional trader requires specialist tools and investing equipment. There is also a significant aspect of discipline. Many of the biggest losses in history happened because undisciplined traders ignored the data they were given. Remain calm and treat trading like any profession. The lifestyle is amazing if you’re able to maintain control.
Analytics – The Software For Trading
Choosing the right software for trading is key to successful trading. The best software programs are expensive because they provide unique technical indicators that are unavailable through the news stream. Here are some required features for any quality trading software:
Broker integration – There must be direct integrations with brokerages. This allows you to remove emotional distractions and automate the execution of trades. It also accelerates the trading process.
Multiple news sources – News feeds play a critical role in day trading. Gathering more information allows you to make better decisions and react more quickly than others – quick and accurate reactions mean more profits.
Genetic and Neural Applications – These aspects of software take advantage of artificial intelligence and provide increase pattern recognition when evaluating and predicting price movement.
Backtesting – This is a technique where a new strategy is applied to past data. This allows a certain degree of analysis and increases the accuracy of future trades.
Automatic Pattern Recognition – A core aspect of any trading software, automated pattern recognition allows for the identification of patterns, issues, channels, flags, and other trends.
Mastering emotions is critical if you plan to pursue a career in trading. Making swift decisions is paramount when you are jumping in and out of different hot stocks. Some traders get such a thrill from these decisions and situations that they become addicted. Follow these simple rules to avoid making those errors and start making good decisions:
Being in control of fear – Sometimes, the best stocks go down, the worst stocks go up. When something unexpected happens, many traders become afraid, and they sell everything. That might prevent losses, but it also prevents gains as the money has been removed from the market. Being aware of your fear and controlling it is unnatural only that will allow you to maintain focus and make good decisions consistently.
‘Pigs get slaughtered’ – The best traders know when to get out of a winning position before they lose money. However, learning how to do that isn’t easy. The key is to identify the feeling of greed and smother it as soon as it starts to creep in. You must always maintain a discipline to succeed at day trading. Ask yourself what your weaknesses are. Where do you get too greedy? When do you get too fearful? Recognizing those weaknesses is central to successful trading.
(my cool website!) is here because we wanted to create a trustworthy day trading school that could act as a university or an institute that provides you with high-level information that you have access to at all times. We want (our cool site!) to be your favorite place to learn how to day trade. However, we recognize that there are other resources that you should know about:
- Chat rooms (always free)
- Practice game apps
- Pdf guides
- Online day trading courses
- Message boards like Discord
Best of all, get a day trading mentor and find your personal best trading platform. Trading mentors help you learn faster and easier and guide you to make money with less failing. As always, remember that knowledge is power, and in order to have the knowledge, you must study according to your needs. Don’t study value investing if you want to learn day trading!
7 Success Secrets
If you’re looking to start day trading as a hobby, or you just want to make some extra income from home, these seven tips are essential.
- KISS: Keep It So Simple! Especially at the beginning, maintaining simplicity is a must. You might be interested in making money with Forex, grain futures, gold, and bonds. However, don’t do that. Choose one thing and focus on mastering it. Get good at making money from one market/security before you branch out. The other markets won’t disappear.
- Managing Risk: All day traders must adopt risk management as one of the most crucial lessons they will learn. You must have a system of money management. That system must include the ability to trade regularly and manage your money in a systematic way.
One general rule that holds for most successful traders is that they never spend on a single trade more than 1% of their total account balance. For example, if you had $35000 in your account, you would risk – at most – $350 in a trade. Be sure to carefully calculate your risk before you ever enter a position.
- Setting Things Up: To get the best chances for success, be sure get a great start. You should always have the best information in front of you at all times. The best information comes from the best trading platforms available on your computer. It also means that you have to have reliable and fast internet, a scanner, and the ability to live stream
- Be Real: Too many movies have made day trading seem easy. It isn’t. You must put in the hours, or you’ll make misinformed decisions and use poor judgment. You won’t be invited to lunch with Warren Buffet after reading his book one time. You need to study the masters, read their books, download the PDFs, and master all the pieces and parts of this complicated game.
- Making good decisions: There are many difficult decisions to make when you start day trading. What’s the best time? What’s the best tool for you? Is Robinhood good enough? Should you get a new computer? Is Coinbase going to help you in your market? Should you use an Excel template or make your own? How should you automate your watch list? The goal of (my cool website!) is to answer these and every other question you might have about day trading.
- Timing: Each market is in a different time zone and which makes negotiating trades a tricky business. Trading the NYSE and the NSE can be very profitable, but the buy/sell signals for each market happen at radically different times. Missing those signals will significantly minimize your profits. This means you may need to modify your working hours in order to maximize your earnings.
- Document everything: Fundamental to all things day trading is the habit of carefully and consistently documenting all earnings reports for any trade you’re considering. This is usually best done in spreadsheet software, but some database applications can be beneficial as well. If a trade goes sour, your records can show you where you went wrong in your calculations and predictions. This increases your likelihood of success in the future.
Discussing taxes for day traders is very complicated because tax laws often apply to “residents” of a country, and every country has different laws. Beyond that, FinTech is causing chaos in many countries because government officials are unable to keep up with the rapid changes.
For example, is Litecoin a currency or a commodity?
Individual circumstances also affect the ways that day traders are taxed. Officials in the United Kingdom often evaluate personal circumstances based on three different questions:
Is it more like gambling? – Income tax, capital gains tax, and business tax are usually remitted when officials determine that an individual’s behavior in the market resembles gambling.
Is it self employment? – When an individual is using their day trading profits to support themselves, officials usually view these profits as subject to business tax.
Is it for a private investor? – If a day trader is providing services for a private investor or could be classified as a private investor, then those profits and losses would fall under the domain of capital gains tax. Trying to only pay business tax when you are a private investor is illegal and carries heavy financial penalties.
A day trader could fall into any of these three categories within just a few years. This occurs because of daily fluctuations in trading activity. Even though day traders do not need a license to trade, it’s advisable to carefully track your trades. (This is covered in the “Document Everything” step above.) Many beginning traders also gain great benefit from seeking tax advice from an accountant who is licensed in their region. This helps them protect against possible errors and follow all regulations and laws that apply to your particular area.
Read the Guide to Day Trading Taxes for more comprehensive information on tax rules and reporting.
What’s the average income of a day trader?
Probably the most common reason that many people become day traders is the hope of significant financial success. The cinema and the news are replete with stories of beginner traders who hit the jackpot and with just $1000 became millionaires almost overnight. Some of these stories are true, but the reality for most people is not so rosy.
Discipline, strategy, and commitment are the major factors in successful day trading. (My cool website!) was created with the express purpose of providing you with detailed information related to all of these factors.
The final question, though, is always the same. “Does day trading really work?”
If you’re willing to put in the work…
The short answer is, “Yes!”
eToro is a multi-asset platform which offers both investing in stocks and cryptoassets, as well as trading CFDs.
Please note that CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.
Past performance is not an indication of future results. Trading history presented is less than 5 complete years and may not suffice as basis for investment decision.
Copy Trading does not amount to investment advice. The value of your investments may go up or down. Your capital is at risk.
Cryptoasset investing is highly volatile and unregulated in some EU countries. No consumer protection. Tax on profits may apply.
eToro USA LLC does not offer CFDs and makes no representation and assumes no liability as to the accuracy or completeness of the content of this publication, which has been prepared by our partner utilizing publicly available non-entity specific information about eToro.
Don’t invest unless you’re prepared to lose all the money you invest. This is a high-risk investment, and you should not expect to be protected if something goes wrong. Take 2 minutes to learn more.