Day trading is a perfect tool to learn to trade and get familiar with the stock market. This post explains how day trading works and covers the main rules of day trading.
What is Day Trading?
Day Trading is trading and speculating of various financial tools such as Indices, Forex, Stocks, CFDs and others, with the aim to profit from small market movements. Usually, financial instruments are held from minutes to hours up to one day.
For most traders, especially beginner traders, day trading can look very simple and easy.
However, in reality, it is time-consuming, requires patience, discipline, objectivity, research and planning.
Because it is speculation on smart market moves, high leverage is usually used. It increases the risks of losing your capital.
Day Trading requires
- Time - it is like a normal job
- Education and experience
- Strategy
- Self-discipline
- Research
- Planning
- Patience
- To use high leverage
- Big capital to invest
When used properly, day trading can be very profitable. Furthermore, day trading with a demo account is a perfect place to learn to trade and get familiar with the stock market.
What is a Day Trader?
People who day trade are called day traders. Day trading requires self-discipline, constant monitoring of the stock market and news around the world.
The main tool day traders mostly use is technical analysis which helps to indicate profitable trades. They use various strategies to trade: news trading, scalping, high-frequency trading with algorithms, range trading and others. Some day traders can execute hundreds of trades per day.
High volatility is the most important for day traders because they try to capitalize on small market moves in a short period of time. Stocks that fluctuate a lot during the trading hours are perfect.
Liquidity of the stocks is also important for day traders. They can buy and sell highly liquid stocks without affecting their price.
To profit from small market moves, day traders use big capital and high leverage. Leverage always increases risks and potential for big losses.
Day trading requires a lot of time, practice and research. It can be treated as a profession and can be your full-time occupation.
Day Trading vs Investing
Day trading is totally opposite to investing. Investors buy assets with the aim to hold them for longer periods of time – months or years. On the other hand, day traders can execute multiple trades per day and focus not on the long-term gain, but rather on short-term market speculation.
Many people discuss which method is more profitable. In reality, both can be equally profitable and it depends on the trader.
Some people prefer to invest, while others prefer to capitalize on small market moves. Day traders use leverage to increase their profits. At the same time, they trade with high risks.
Become a Day Trader
Want to try day trading? Go for it. It is perfect to get familiar with the stock market and learn trading with a demo account! Simply choose one out of many brokers available and start. Some brokers as an example, JFD Group or eToro.
To be successful in day trading, you must invest a lot of time. Firstly, you need knowledge and it requires time. You also need experience, but it comes with time. Furthermore, day trading requires a lot of research. Day traders must know how to research and analyze markets fast.
Software such as Trade Ideas can filter and indicate the stocks market for you so that you could focus on learning and execution.
Every day trader must understand and must risk only capital they afford to lose. Never take credit or borrow money to trade.
Day Trading rules
- Stick to you trading strategy
- Be realistic about your profits
- Timing is extremely important in day trading
- Start with small amount of money
- Read, learn and experiment with demo account
- Day trading is not a game
- Be patient and disciplined
To day trade you must have a strategy. If you don’t have one, you have to build one. Create your enter and exit trade conditions and write them down somewhere. Stick always to them.
Discipline is a must for any day trader. Also, you have to learn how to eliminate or at least minimize your emotions during trading.
It might sound that day trading needs a lot. Simply just try it on the demo account yourself, it does not cost you anything.
Every Day Trader must know
Usually, day trader executes many trades over a day. You must be aware of not every broker allows you to execute your trades faster than in 2 minutes. It will be treated as scalping and many brokers do not allow it.
Start with a demo account to practice trading. Do not start with real money until you will make a constant profit on your demo account.
JFD Group Ltd. offers brokerage services in Europe, UAE and other countries. This broker allows scalping (buying and selling the next second) and offers thousands of financial instruments to trade. Review of JFD broker.
eToro is another brokerage company that supports more than 140 countries. eToro allows day trading, but not scalping. The best part about eToro is that they offer Copy trading – you can simply copy any other trader.
Day Trading in short
To be a successful day trader you have to invest time to make real money. Day trading is like a real career. In fact, during trading hours you need to have access to trading software and the internet.
Day trading requires discipline and strong personal character. Moreover, you must have a trading strategy and funds to trade.
I suggest everyone test it on a demo account because the knowledge you will get during testing can be beneficial in your life.
