Day trading is a worthwhile endeavor. Day traders have the luxury of being able to work from home without a boss. On top of that, traders are in full control of their own income. Day traders can make anywhere from a few hundred dollars a week to millions of dollars per year.
While day trading is exciting, it certainly is not easy. Day traders have to be in tune with the markets every second of the day. For that reason, it’s imperative for any aspiring trader to learn how their trading strategy works and why they chose it before diving into stocks.
What is Day Trading?
Day trading is the activity of taking advantage of intraday price fluctuations in stocks. Day traders buy and sell stocks within a day, as opposed to taking long-term positions.
Unlike investors, day traders usually come to the market with a clean slate and look for new trades every day. They invest in a variety of stocks and utilize many strategies. Day trading is popular because it can be done from home, with little to no capital investment, and without the restriction of timeframes or holding periods for investments.
Some day traders use high-frequency software that allows them to buy and sell quickly. They will often trade stocks in high volume with the goal of capturing a profit on small price discrepancies.
Why is Day Trading So Difficult?
The stock market is highly complex. Day traders aim to take advantage of short-term price fluctuations, which is no easy task. Day trading is difficult because it requires an understanding of why you are making the trade, what stocks will have good short-term price movement, and why.
Day trading also takes a big capital investment. In order to trade stocks as a day trader, you need at least $3000 in your account. Furthermore, the traders must be able to afford commissions for every trade they make, which can range from 50 cents per share to over $100 per transaction.
There is also the pattern day trader rule, which restricts traders who have less than $25,000 in their accounts. If you have less than this amount, then the pattern day trader rule deems that your account is unsuitable for trading and limits the amount of trades you can place.
What Makes a Trader Successful?
A successful trader doesn’t just blindly jump into trades without a plan or strategy; they make sure that their investments have a purpose and not just rote activity. Day traders need to understand why they are making trades, why the company they’re trading has good potential for upward movement in price, and why day-trading that stock is better than simply holding it long-term.
Successful traders always create a plan. They need to consider trade opportunities as well as the associated risks. Day traders use specific, well-researched strategies to navigate the complexities of the market.
Successful trading is all about making good decisions and sticking with your strategy long enough for it to work out in your favor.
It’s important to not get discouraged by losses or think you are a failure because you didn’t make money today.
Some traders think that day trading is too difficult. While it may take some time to learn, the rewards are worth the effort.
Here are some tips for successful day trading:
- Never use the “I lost so why bother” strategy.
- Have a plan and stick to it.
- Trade based on your trading style (day trader vs swing trader). Take an honest assessment of what type of day trader you are, as this will determine how much time and money you need to invest in order to be successful.
- Learn why you are making the trade, why it’s a good idea to make that particular investment at this time, and why day trading is better than holding onto stocks long term (if applicable).
- Have specific goals; know what numbers you want to hit before investing in a company. Day traders should have an understanding of why they are making the trade, why they believe it will be profitable in a short period of time, and why day trading is better than long-term investing.