How to Day Trade for a Living

How to Day Trade for a Living (Beginner’s Guide)

Have you been thinking of becoming a day trader for a long time now?

If answered yes, you’ve clicked on the right post. Today, we’re going to share with you some tips that will set you your day trading career on the right path.

With a little bit of dedication and prior planning along with owning the required software and equipment, you can decide when to day trade and what to trade on.

Scroll down for more information and details on day trading as a beginner.

Choosing the Most Appropriate Market for Day Trading

Now that you’ve planned to become a day trader, you must be having a market in mind where you wish to start trading. The job of a day trader is to watch out for a repeating pattern and then target exploiting it.

If you consider the forex market, you trade currencies like the USD or the euro (EUR). Stocks, on the other hand, are shares of companies like Apple and Walmart. In the forex market, you get an assortment of futures for trading, and these futures are based on indexes or commodities. You could even trade gold, crude oil, or S&P 500 movements.

Each of the markets mentioned above has its pros, cons, and features, and no exchange is considered better than the other. The ultimate question lies in what you wish to trade as a trader and how much you can afford. If you think of trading the forex market, this will require capital to start day trading. Experts recommend you to start with a minimum of $500.

On the contrary, choosing the stock market will demand a minimum of $25,000 for day trading, making this a costly option for a beginner. However, you need to understand that although the stock market requires more capital to day trade, that doesn’t make this market worse or better than other markets. In case you don’t have $25,000 in your account, stocks are probably not the ideal option for you.

Don’t make the blunder of trying your luck on all the markets, as mentioned earlier at once. You won’t be able to give undivided attention to any specific market, and hence, earning returns will take a longer time. As and when you begin to make money in a single market, you’ll gradually start adapting to the other markets as well.

Have patience and take small steps at a time. One more option for you is to check the social trading option, which may be excellent, in studying your alternatives and copying someone who knows how to trade and that has been trading for a while.

Day Trading – When is the Right Time?

Consistency is the key for a day trader, whether a beginner or a seasoned trader, and the best way of increasing consistency is to trade at the same hours every day. While there are traders who trade through a long duration, there are others who trade just during a portion of the day. Trading for at least 2-3 hours in a day is probably the most common duration adopted by most day traders. Check out the hours you should concentrate on:

  • If you’re interested in day trading in the stock market, the most appropriate time would be the first 1-2 hours after the open and the one last hour before it closes. To adopt a good strategy at day trading, 9.30 a.m to 11.30 a.m is considered as the most volatile period of the day when you have the highest potential of making returns from the most significant moves in prices. At the same time, the last hour, 3 p.m to 4 p.m, is also a favorable time for trading as sizable moves usually take place at this time of the day as well.
  • In the case of futures trading, the time during the open is the perfect time to trade. The most active futures witness the best trading activity throughout the day, and hence, proper day trading starts earlier than the stock market. The futures market has different times for closing, but the last hour of trading offers sizable moves for the traders to monetize on.
  • During the week, the forex market is open 24 hours, and USD EUR is probably the most famous pair of currencies to be traded. The highest volatility is seen between 0600 and 1700 GMT, and hence, day traders should trade between these hours. The most significant moves in prices occur from 1200 to 1500 GMT, and accordingly, this too is deemed to be the most active time for day traders. This is the time when both the American and London markets are open for trading the USD and euro.
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Since you’re a day trader, you won’t require trading all day. Just trade for 2-3 hours a day and increase your consistency accordingly.

Things to Know Before you Start Day Trading

Starting as a day trader is never a decision that you should take lightly. With the right strategy in place, it is possible to make a good living by day trading just a few hours every day.

Though the first year is indeed tough as you may have to go through a few ups and downs, once you get a grip on the trade, you never have to look back. Here are a few things to know before day trading.

#1: Design Your Strategy

Whims and fantasies can never rule your day trading skills. You need to have a rehearsed method that offers you a statistical edge on the trades that you make. Begin to watch free live charts and meanwhile ask yourself the following questions

  • In what way would I like to get into the trade?
  • How would I get out of the trade?
  • How much amount can you risk on the trade, and what is the size of the position that you would prefer taking?
  • What are the odds that the trade can be lucrative for you? What tendencies do your strategies imply?

The best way of answering all the questions mentioned above is by incorporating a similar method time and again and monitoring the results from time to time.

#2: Never Stop Practicing

The key to day trading is practicing. Not only is this true with day trading, but with any sport, the more you practice, the better you get at it. As you put at stake thousands of your dollars, you need to practice as much as you can.

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Create a demo account and practice there before you risk a dollar. Trade a strategy that you create and keep practicing. Not doing so will make you miss trade signals, which might be a vital part of your trading strategy. Try and perfect your plan before you move on to live to trade.

#3: Know How Much Capital You Need

Just as is the importance of inventory to a store owner, money is similar to a day trader. Your capital should operate; you need to calculate how much you have and manage it properly to determine the income.

Ideally, you would need $25,000 to begin day trading, but if you wish to give yourself a buffer, deposit at least $30,000. In case you keep entering and exiting stock positions with not even $25,000 in your account, you may have the risk of losing on trading privileges.

#4: Select a Reliable Broker

When you develop and practice strategies, it is better to join hands with an honest broker. It might even be the same person with whom you open your demo account, or it might be someone else too.

The most significant trade that you make in day trading is choosing your broker as you give him the responsibility of the capital. Make sure you strike a balance with stellar customer care service, proper execution, and competitive fees.

#5: Stay Away From Penny Stocks

Being a beginner, you will most probably look forward to low prices and deals, but that doesn’t mean you’ll choose penny stocks. Such stocks are mostly illiquid, and there are bleak chances of making good returns. There are several stocks that trade under $5 a share usually get delisted from the stock exchanges are traded ITC (over-the-counter). Unless you find a real opportunity or you’ve done the right competitor research, stay off penny stocks.

#6: Be Realistic Regarding Your Profits

It is not that a strategy has to win 100% of the time to be termed as profitable. Many traders only profits on 50-60% of their trades, and still, they make more on their wins than what they lose on their losses. Nevertheless, you have to ensure that the risk on each trade is restrained to a certain percentage of the account, and the exit and entry methods are correctly defined.

Trading for a Living

So, as we see day trading is challenging to master for a beginner, you require skill, time, and discipline. While many may fail even after trying, if you choose the right techniques and follow the best guidelines, you can create a lucrative strategy for day trading. Improve your chances of beating odds by seeking the help of an experienced broker.

About the Author

Michael launched Your Money Geek to make personal finance fun. He has worked in personal finance for over 20 years, helping families reduce taxes, increase their income, and save for retirement. Michael is passionate about personal finance, side hustles, and all things geeky.

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