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Offer #31306 - LEARN DAY TRADING


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Day Trading: The Basics and How to Get Started

There was a time years ago when the only people able to trade actively in the stock market were those working for large financial institutions, brokerages, and trading houses. The arrival of online trading, along with instantaneous dissemination of news, has leveled the playing—or should we say trading—field. The easy-to-use trading apps and 0% commissions of services like Robinhood, TD Ameritrade, and Charles Schwab have made it easier than ever for retail investors to attempt to trade like the pros.

Day trading can turn into a lucrative career (as long as you do it properly). But it can be challenging for novices—especially those who don't have a well-planned strategy. And be aware that even the most seasoned day traders can hit rough patches and experience losses.

So, what exactly is day trading, and how does it work?

Key Takeaways

Day traders buy and sell stocks or other assets during the trading day in order to profit from the rapid fluctuations in prices. Day trading employs a wide variety of techniques and strategies to capitalize on these perceived market inefficiencies. Day trading is often informed by technical analysis of price movements and requires a high degree of self-discipline and objectivity.

What Is Day Trading?

Day trading is a fast-paced form of investing in which individuals buy and sell securities within the same day. The goal is to profit from short-term price movements in stocks, options, futures, currencies, and other assets. Day traders typically combine strategies and forms of analyses, including the following:

Technical analysis: Focuses on past prices and trading patterns to predict coming trends. Momentum trading: Capitalizes on short-term trends and reversals to capture quick gains.

Unlike long-term investors, day traders are less concerned with the fundamental value of the securities and more focused on capturing immediate gains from market fluctuations.

The Attraction of Day Trading

The appeal of day trading lies in its potential for quick profits. However, it comes with severe risks and requires a significant understanding of the markets. Successful day traders do the following well:

Stay informed: Monitor market headlines, economic reports, and other factors influencing stock and other asset prices throughout the day. Make quick decisions: Have the ability to make fast, informed decisions in a volatile market. Employ leverage: Use borrowed funds to amplify potential profits, which proportionately magnifies potential losses.

Because of these factors, day trading is not for inexperienced traders or those without the finances to absorb the potential losses.

Relevant Regulations To Know

Understanding the regulatory environment around day trading is crucial. In the U.S., the Financial Industry Regulatory Authority (FINRA) and the Securities and Exchange Commission (SEC) have specific rules for "pattern day traders." These include the following:

Pattern day trader definition: Traders who execute four or more day trades within five business days. Margin requirements: Pattern day traders must always have a cash balance of at least $25,000 in their brokerage account.

These regulations ensure that only those with enough resources and knowledge participate in this high-stakes activity.

The Basics of Day Trading

Day trading is most commonly found in stock and foreign exchange (forex) markets, where currencies are traded.

Day traders are attuned to events that cause short-term market moves. Trading based on the news is one popular technique. Scheduled announcements like releasing economic statistics, corporate earnings, or interest rate changes are subject to market expectations and market psychology. That is, markets react when those expectations are unmet or exceeded—usually with sudden, significant moves that can benefit day traders.

How to Start Day Trading

Professional day traders have in-depth knowledge of the marketplace, are well-established, and make a living from it. Here are the steps:

Learn a good deal about the market and how to use fundamental and technical analysis. Ensure you have enough capital to begin to meet regulations and, beyond that, so you're never putting more on the line than you can afford to lose. Develop criteria for trading and stick with them.

Here are more details:

1) Gain Lots of Market Knowledge and Experience

Individuals who attempt to day trade without an understanding of market fundamentals often lose money. A working knowledge of technical analysis and chart reading is a good start. But without a deep understanding of the market and its unique risks, charts can be deceiving.

Do your due diligence and understand the particular ins and outs of the products you trade.

2) Make Sure to Have Sufficient Capital

Wise day traders use only risk capital that they can afford to lose. This protects them from financial ruin and helps eliminate emotion from their trading decisions.

A large amount of capital is often necessary to capitalize effectively on intraday price movements, which can be in pennies or fractions of a cent.

Adequate cash is required for day traders who intend to use leverage in margin accounts. Volatile market swings can trigger big margin calls on short notice.

3) Learn Trading Discipline

Many day traders end up losing money because they fail to make trades that meet their own criteria. As the saying goes, “Plan the trade and trade the plan.” Success is impossible without discipline.

To profit, day traders rely heavily on market volatility. A day trader may find a stock attractive if it moves a lot during the day. That could happen for a number of different reasons, including an earnings report, investor sentiment, or even general economic or company news.

Day traders also like stocks that are highly liquid because that gives them the chance to change their position without altering the price of the stock. If a stock price moves higher, traders may take a buy position. If the price moves down, a trader may decide to sell short so they can profit when it falls.

Regardless of what technique a day trader uses, they’re usually looking to trade a stock that moves (a lot).

Who Makes a Living by Day Trading?

There are two primary divisions of professional day traders: those who work alone, and/or those who work for a larger institution.

Most day traders who trade for a living work for large players like hedge funds and the proprietary trading desks of banks and financial institutions. These traders have an advantage because they have access to resources such as direct lines to counterparties, a trading desk, large amounts of capital, leverage, and expensive analytical software.

These traders are typically looking for easy profits from arbitrage opportunities and news events. Their resources allow them to capitalize on these less risky day trades before individual traders can react.

The Solo Day Traders

Individual traders often manage other people’s money or simply trade with their own. Few have access to a trading desk, but they often have strong ties to a brokerage due to the large amounts they spend on commissions and access to other resources.

However, the limited scope of these resources prevents them from competing directly with institutional day traders. Instead, they are forced to take more risks. Individual traders typically day trade using technical analysis and swing trades—combined with some leverage—to generate adequate profits on small price movements in highly liquid stocks.

Day trading demands access to some of the most complex financial services and instruments in the marketplace. Day traders typically require all of the following:

Access to a Trading Desk

This is usually reserved for traders who work for larger institutions or those who manage large amounts of money.

The trading or dealing desk provides these traders with instantaneous order execution, which is crucial. For example, when an acquisition is announced, day traders looking at merger arbitrage can place their orders before the rest of the market is able to take advantage of the price differential.

Financial Media Sources

News provides most of the opportunities. It is imperative to be the first to know when something significant happens.

The typical trading room has access to all of the leading newswires, constant coverage from news organizations, and software that constantly scans news sources for important stories.

Analytical Software

Trading software is an expensive necessity for most day traders. Those who rely on technical indicators or swing trades rely more on software than on news. This software may be characterized by the following:

Automatic pattern recognition: This trading program identifies technical indicators like flags and channels, or more complex indicators such as Elliott Wave patterns. Genetic and neural applications: These programs use neural networks and genetic algorithms to perfect trading systems and make more accurate predictions of future price movements. Broker integration: Some of these applications even interface directly with the brokerage, allowing for instantaneous and even automatic execution of trades. This eliminates emotion from trading and improves execution times. Backtesting: This allows traders to look at how a certain strategy would have performed in the past to predict more accurately how it will perform in the future. Keep in mind that past performance is not always indicative of future results.

Combined, these tools provide traders with an edge over the rest of the marketplace.

Day Trading Strategies

A trader needs to have an edge over the rest of the market. Day traders use any of a number of strategies, including swing trading, arbitrage, and trading news. They refine these strategies until they produce consistent profits and limit their losses.

There also are some basic rules of day trading that are wise to follow: Pick your trading choices wisely. Plan your entry and exit points in advance and stick to the plan. Identify patterns in the trading activities of your choices in advance.

Day traders use numerous intraday strategies. These strategies include:

Scalping: This strategy focuses on making many small profits on ephemeral price changes that occur throughout the day. Arbitrage is a type of scalping that seeks to profit from correcting perceived mispricings in the market.

Range/swing trading: This strategy uses predetermined support and resistance levels in prices to determine the trader's buy and sell decisions.

News-based trading: This strategy seizes trading prospects from the heightened volatility that occurs around news events or headlines as they come out. One type of news-based trading involves whether a merger or acquisition that has been announced will go through or not.

High-frequency trading: These strategies use sophisticated algorithms to exploit small or short-term market inefficiencies.

Risks of Day Trading

For the average investor, day trading can be a daunting proposition because of the number of risks involved. The U.S. Securities and Exchange Commission (SEC) highlights some of the risks of day trading, which are summarized below:

Be prepared to suffer severe financial losses: Day traders typically suffer severe financial losses in their first months of trading, and many never make a profit. Day trading is an extremely stressful full-time job: Watching dozens of ticker quotes and price fluctuations to spot fleeting market trends demands great concentration. Day traders depend heavily on borrowing money: Day-trading strategies use the leverage of borrowed money to make profits. Many day traders not only lose all of their own money; they wind up in debt. Don’t believe claims of easy profits: Watch out for hot tips and expert advice from newsletters and websites catering to day traders and remember that educational seminars and classes about day trading may not be objective.

Should You Start Day Trading?

If you're determined to start day trading, be prepared to commit to the following steps:

Make sure you come in with some knowledge of the trading world and a good idea of your risk tolerance, capital, and goals. Be prepared to put in the time to practice and perfect your strategies. Start small. Focus on a few stocks, rather than wearing yourself thin. Going all out will complicate your trading strategy and can mean big losses. Stay cool and try to keep emotion out of your trades. Don't deviate from your plan.

If you follow these simple guidelines, you may be headed for a sustainable career in day trading.

The Bottom Line

In conclusion, day trading can be a potentially lucrative career option for those who have sufficient knowledge, capital, discipline, and risk tolerance. However, it is important to understand that day trading comes with significant risks and challenges. It requires continuous learning, staying informed about market trends, making quick decisions, employing leverage cautiously, adhering to regulations, having access to necessary resources such as trading desks and financial media sources, using analytical software effectively, developing sound strategies based on technical analysis or news-based opportunities, managing risks effectively, and maintaining discipline throughout the process. It is also crucial to be aware of relevant regulations governing day trading activities. While some individuals may find success as solo day traders managing their own funds or working for larger institutions like hedge funds or proprietary trading desks, it is important to note that day trading is not suitable for everyone. It requires dedication, perseverance, continuous improvement, and realistic expectations. As with any form of investment or trading activity, there are no guarantees of profitability in day trading. Therefore, it is essential for individuals considering day trading as a career option to thoroughly educate themselves about its intricacies before committing significant time and capital into it.

Sources: Investopedia - Day Trading: The Basics and How to Get Started , Audible - Day Trading for Beginners- Become an Intelligent Day Trader by David Morales - Audiobook , LEARN DAY TRADING

Note: The information provided in this article is for informational purposes only and should not be considered as financial advice. Always do your own research before making any investment decisions.

Money :: TRADING IS A GOOD BUSINESS: YOU NEED THE RIGHT TRAINING TO MAKE CONSISTENT PROFITS. Include: - 6 complete modules - Training to successfully start trading on all financial markets (Forex, Cryptocurrency, Index, Commodity, Shares), regardless of your experience or knowledge of trading. - 300 pages of knowledge, explanation, and results. - All my strategies (The meaning of candles, RSI Tips, Identify the trend, Fibonacci force, The magic of trend lines) and more - +100 real-life examples of stock analysis, Crypto, and Forex There is a counter for 1 day restarting every day. 50% for you when you sell this ebook. Click on the offer link to see the summary.

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