A Foundational Guide to Day Trading

Day Trading Beginners Guide


A day trading in simple terms just as the name implies is a short-term trading done in less than one day, aimed at making profit from the financial market. Trading is usually made on Forex, stocks and futures by traders who sometimes trade on part-time basis while others on full-time. Trading styles differs in traders, while some are active traders making multiple trades in a day; others are not so active making one or two trades on a daily basis.

There are lots of misconceptions about day trading. While some consider it not profitable on a long term for many reasons, others paint day trading as a way to hit gold quick. There may be some element of truth in both assertion but they are not totally true in all circumstances and with individual traders. While there are traders that had made huge success out of daily trading, this cannot be said for many daily traders. The obvious is that the truth lies somewhere in between the two extremes and finding out requires understanding how daily trading works, as this gives you some safety nest in your future daily trading endeavor.

This guide will be broken into sections in a bid to dissect day trading and understand how it works so as to maximize it for profitability.

Time Investment required for successful Day Trading

It is necessary to make it clear that day trade requires an ample of time to master. Time could range from six months to a year, as daily trading is not a fast route to get rich quick. There is need for devoting time to master skills and strategy that works for you at varying conditions. This mastery is not gotten in a flash. What works today may not fly in a couple of days after because the market is dynamic and ever changing. As a trader, bear in mind that no two days are the same and this calls for some level of flexibility when trading.

Trading with demo account as a beginner is the right step to start with in mastery of skills and strategy. It’s unfortunate that most new traders don’t devote enough time to trade demo as long as it requires, and this is due to impatience. Many trade just a few days and switch to using real capital to trading, making them stand the high risk of losing money. Demo account helps to master strategy that should be applied in changing circumstances while trading.

Demo account allows trader to test and develop their trading skill and develop strategies that will suit various market situations. The trader also develops, to some extent, psychological capacity required for trading and this include discipline, focus and patience.

A minimum of six month to 1 year of daily trading is recommended for demo trading to master the art of daily trading, developing skill that will be used in real trading. Your real cash is safer after you have mastered your skills well.

The question is, how many day traders take time to practice for six months to develop their skill? The answer is not so many do this and this tell us why the success rate is low.

Take your time to master those skills.

Daily Trading Beginners Guide:

Day Trading Styles

As earlier stated in the beginning of this guide, there are different styles that a trader ends up choosing after an extensive demo trading. The very active traders are those that take position with small movement in price and they do this by making many trades a day. These set of active traders are also called scalpers. Other traders stick to capturing larger price movement to make trade. Experience shows that scalper’s style of trading most times are short-lived compared to other traders that capture bigger price movements.

Day traders also use Level II and trade off of price charts to get a clue to what goes on in the market as regards orders placed by other market participants in making trading decisions. Other makes decision based on news events and statistics tendencies derived from trade off that are well researched. All these tools are used by informed buyers in making daily trades.

Day Trading Capital Requirements

The capital requirement for day trading differs from market to market. The capital requirement in stocks market differs from that of Forex and stocks market is more capital intensive. For instance, the stock market will need between $25,000 and $30,000 because you are required to maintain a balance above the $25,000 minimum and providing a 4:1 leverage on day trading. This ratio allows using up to $120,000 with a deposit of $30,000.

The Forex market on the other hand requires as low as $500 and it provides leverage of up to 50:1 or higher depending on the country you are trading. It is advisable to start with more than $500 and use leverage as low as 5:1 or 10:1, as this will allow you to take positions; five/ten times your initial capital.

Futures minimum deposits vary depending on the broker. There some brokers that offers $1,000 though higher amount is recommended. Here leverage on one side can hike your returns to also comes with its risk of high loss that can get worse with a negative balance. It calls for a careful use of leverage and the use of stop loss order while trading.

Choosing the market to Day Trade

In simple terms, choice is up to trader’s preference. The three major markets offer almost the same profit potential only that they trade different commodities.

Stocks market to trade shares of companies daily.

Forex markets buy and sells countries currencies, with popular pairs such as EUR/USD.

Futures have to do with contracts, matching a seller with a buyer who will pay a specific price for an asset after the expiration of a contract. In day trading, real asset is not delivered or paid for but profit and loss are made depending on the opening and closing price of the contract.

Each market has its own peculiarity and tricks. You will need to master one and not all, so it’s better to stay put to one rather than trading the three while you learn the game as a beginner.


Daily Trading Beginners Guide:

Expected monthly returns from Daily Trading

This is unpredictable because we have people on both sides of the divide. While some barely make profit day trading, many lose while others are making a fortune yearly running into hundreds of thousands. As we have iterated earlier, a lot of factors go into what output traders get from daily trading. The skills at the disposal of each trader will determine the level of profit to expect.

The bottom line still comes to the need to build trading skill, practicing with demo account which gives the trader the opportunity to master the art without the risk of losing money. Traders that patiently do this religiously are in for a profitable trading in the future.

The starting point in determining what your income will look like is to open a demo account with an opening balance of what you plan to trade with later with a live account. Run this demo account for 6 months to see how you fare and make your judgment.

While trading on a daily basis follow these simple steps

Never risk more than 1% of your account on a trade as a new trader. Loss, in this case, will do little harm to your operating balance. With this minimal risk, you can reach the goal of 10% to 30% profit a month as a new trader with small account. A bigger account has lower percentage return so it better to keep a smaller account to make higher return.

These profits can only be realized after mastering strategies that work for different number of market conditions and this on an average takes about six months to one year to acquire before this monthly return can be realized.

Hardware and Software Requirements for Day Trading

Day training requires some basic equipment for successful trading. The reliability of each of the equipment must be guaranteed by providing a backup alternative incase one fails.

First on the list is a computer or laptop. Many traders prefer multiple monitors to have a real time view of all tabs but one monitor can be used to keep an eye on all assets.

Next is a reliable internet access, which is the lifeblood of your daily trading. A high speed cable or ADSL will serve this purpose. It is wise to have a back up internet access on smart phone/tablet for times when internet access shuts down unannounced, positions can be managed via this alternative means.

It is also necessary to have an alternative means of reaching your broker apart from channels provided through trading platform, email, and chat. This alternative could be a cell phone or land line, and could save you of headache and loss in case of emergency.

Your broker will provide you with their own software, on which you trade whether live or demo. Sometimes third-party software is provided that is linked to many brokers. The software is the platform on which you take actions that are instantaneously relayed to the market on your behalf. These softwares also come with charting features. You may need to add your own reliable charting software for more efficiency.


Daily Trading Beginners Guide:

Challenges to Surmount to be Successful in Day Trading On A Long Term

Just like every endeavor that is worthwhile, day trading has its own challenges that must be surmounted to be successful. The first thing is to have the right mindset about the volatility of the market. Trading days are different from one another. You need to develop a strategy that works in almost all conditions you find on the market. This is not to propose having it perfect 100%, there will definitely be some loss here and there but your profit must out number your loss. You aim should be how to keep the incidence of loss to the barest minimum. The most important thing is not wining every day trade but wining the weeks and the month.

Achieving this goal falls back to developing a strategy that suits all market conditions. Stay away from complex systems that tend to confuse you with arrays of indicators or make you do extensive research. Simple price action strategy is perfect for Forex day trading.

Another major challenge to face is the need to maintain psychological balance while trading. When faced with pressing financial needs, traders may lose it as they are pressed to get result at all cost. This stress can induce mistake through poor judgment. If this is not well managed, it will lead to a cycle of loss that can wreck ones trading endeavor. Trading does not always guarantee profit, let that be settled in your mind.

Self Investment

Never be carried away with softwares that promise you no-work-get-rich overnight. They may seem to work but they don’t always last. Don’t be tricked to believing there is a short-cut somewhere, packaged as a particular software. The best product you can invest in is yourself, those scam products do not deserve your time and money.

Invest in buying books and reading articles that will horn you skill in trading. You can leverage on the experience of a mentor you think you can follow. Your education in day trading is more valuable than the trade signals you subscribe to monthly costing you some fortune. Strive to be self reliant with time. Your skill cannot be taken away from you once acquired. You skill is what to need to make the money.

Conclusion on Day Trading

Day trading is profitable when allowed to mature through its gestation period, putting every requirement discussed in this guide in place. It cost time, money and patience and they have to be properly managed.

You may need to adopt a no-profit- expectation at your initial entrance into day trading, it will save you unnecessary stress and maintain your psychological balance.

Ensure you have your tools and equipment in proper condition at all times. Pick a data feed from the numerous markets available and stick to it. Using multiple feed will cost more money so keep your cost low.

Stick with simple methods you understand and works for you. Aim to be self reliant on a long run by investing in yourself.