A beginners guide to day trading: 10 Crucial things to consider

One all-time high follows the next, and it seems that the market rally never ends. One tweet or forum post can move stocks and cryptocurrencies by 100% and more within a day.

But is it worth all the hype? Is it a good idea to start long-term investing now, or is day trading the better alternative to benefit from the exceptional market volatility?

What is day trading?

Day trading is a speculative type of short-term investing. A trade is a day trade if a position was opened and closed on the same trading day. This goes to all kinds of tradable assets, but the most popular day trading assets are stocks, currency pairs, and options.

Example: Ben purchases 100 shares of Apple at the market open for $120 and sells 100 shares of Apple during the trading day. These two transactions are considered as one day trade.

What is a day trader?

A day trader is a person who executes the day trades throughout the day. A day trader can work for an institution like a hedge fund, some work for a prop firm, and thousands of retail day traders actively manage their account by buying and selling assets like stocks intraday.

How do I develop a trading edge

A day trader competes with thousands of traders worldwide and needs to develop a trading edge to be successful. It is like playing poker. If you know what you are doing and know how to interpret what you see correctly, you will have an edge. And the same goes for day trading. Day trading websites like daytradingz.com help traders determine what tools and resources to use to develop a trading edge.

How much time does it take to become a profitable day trader

People often dream of making a living from day trading by simply opening a trading account. But it requires developing skills to learn how the markets work, understand how the market participants interact and how the brokerage platform can be used efficiently. This requires time and the best way to start day trading is by utilizing a trading simulator. Trading with real money can be considered once a day trader is profitable over a minimum of 3 months.

What are the most popular market analysis methods?

Long-term and value investors typically rely on fundamental data and financial metrics like earnings per share, market capitalization, dividends, or simply believing in a company's vision.

Day traders do quite the opposite by focusing on technical analysis and trading the news without taking care of a company's philosophy, industry, or leadership.

What is the best time to day trade?

Day traders primarily aim to monetize on high volatile market movements because market volatility often comes with high trading volume, excellent order executions and good risk-reward ratios. The most volatile times are typically the first 60 minutes after market open and the first minutes after surprisingly released company news.

How much money do I need to get started?

The minimum account requirements for day trading vary from country to country and asset to asset. For example, within the United States, an account minimum of $25,000 is required to execute 4 or more day trades of stocks and options within 5 subsequent business days. However, in the United Kingdom and most European countries, the broker defines the account minimum, and day traders can often start with a budget of $1,000 or less.

How risky is it to day trade?

Brokerages do not publish dedicated statistics about day trader success rates. However, CFD brokers publish statistics about the success rates of traders who leverage their funds and trade on margin, and the statistics reveal that about 67% of retail investors lose money when trading CFDs. Trading on margin with leverage is also typical for day traders, so the success rate of day traders is probably similar.

What are the biggest stock exchanges in the world?

The biggest stock exchanges in the world are:

  1. New York Stock Exchange (NYSE)
  2. Nasdaq Stock Exchange (NASDAQ)
  3. Japan Exchange Group (JPX)
  4. Shanghai Stock Exchange (SSE)
  5. Euronext
  6. London Stock Exchange Group (LSEG)

What trading tools do I need to start day trading?

Most day traders start with the trading tools integrated within the brokerage platform. Additional tools like market scanners, news feeds and analysis software can help to improve the grade of profitability. The essential thing to have is a fast internet connection to ensure that the market data is delivered in real-time with low latency.

Conclusion

While it is possible to reach financial independence by day trading stocks, options, cryptos and other assets, it also involves risk like any investment style. The key is to set realistic goals and begin with the educational part of day trading, followed by paper trading. Even zero commissions should not disguise the fact that it requires a high commitment, excellent skills, and an above-average trading capital to generate meaningful returns.

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