Day trading is a strategy and culture you can say in which traders buy and sell financial instruments within the same day, such as stocks, currencies, items etc.
The main purpose of day trading is to take the benefits of short term price fluctuations in the market. Day traders mainly aim to profit from price movements that occur during the period of minutes to hours, rather than holding positions for long period of time like other traditional investors.
Characteristics of Day Trading include:
Short Holding Periods:
Day traders usually open and close positions within the same trading day. They rarely hold positions overnight. They aim to avoid risks such as after-hours price movements and overnight news events.
High Frequency of Trades:
Day traders mostly do large trades throughout the trading day, often making hundreds of trades in a single day. These trades allow them to catch small price movements and get profits over time.
Technical Analysis:
Day traders depend heavily on technical analysis, which involves analyzing the price charts, patterns, trends, and various other technical indicators to predict price movements. They use these analysis to make proper decisions about when to enter and exit the trade.
Leverage and Margin:
Some day traders use leverage, which allows them to control large positions. This increases the chance of profits but also increases the risk of losses too.
Risk Management:
This one is the most important. Successful day traders use strict risk management strategies to have less losses. This involve settings like stop-loss orders to automatically exit a trade if it moves against the certain amount in the trade.
Dedicated Time and Attention:
Day trading needs constant monitoring of the market and real-time decision making. Traders need to be focused and responsive all the time, incase any changes occur in market conditions.
How does Day Trading work?
Day trading involves a series of steps and strategies that traders follow to execute trades and profit from short-term price movements. Here’s a general overview of how day trading works:
Market Research and Analysis:
Day traders start their day by researching and analyzing the markets they want to trade in. This includes studying different things, such as price charts, technical indicators, and news that have the chances to affect the assets in which they are interested to trade in.
Identifying Trading Opportunities:
Based on their analysis of the day, day traders identify possible trading opportunities. They look for the assets that show signs of short term price movement. These kinds of opportunities may come from news events, technical patterns, or other market factors of trading.
Entry and Exit Strategies:
Traders determine their entry and exit points before executing a trade. This involves knowing specific price levels at which they will enter the trades (buys) and exit the trades (sells) to get profit. Stop loss orders are also set to automatically exit the trade if the price moves from a certain point against the trader point.
Monitoring and Managing Trades:
After entering a trade, day traders keep on monitoring their positions. They watch and keep an eye on the market closely for any changes that may occur and affect their trading. If the trade goes in their favor, they can consider adjusting their stop loss orders to lock in profits as the price rises.
Adapting to Market Conditions:
Markets are unpredictable, and conditions can change quickly anytime. Day traders adapt to new information, market trends, and price movements to gain profits from their trade. If they see any kind of signs that the market is moving against their position, they close the trade early to save themselves from any loss.
Exiting Trades:
Day traders mainly aim to exit their positions by the end of the trading day. This saves them from being exposed to any kind of risk that may occur overnight because you never know when and from where unexpected news or events can cause significant price differences. Traders mostly exit a trade when they meet their target profit.
Review and Analysis:
At the end of the trading day, day traders review their trades, results and all the strategies they applied in their trading. They analyze their successes and mistakes to identify ways to improve their strategies to make themselves less exposed to losses.
Best Day Trading Platforms
Thinkorswim by TD Ameritrade:
Thinkorswim is a widely recognized trading platform known for its excellent features and user-friendly interface. It provides advanced charting tools with customizable notation, study, and drawing tools. Traders can easily analyze price movements and identify patterns smoothly.
Interactive Brokers:
Interactive brokers are a popular choice among active day traders due to their direct market access, low fees, and wide range of tradable assets. It provides direct access to numerous global markets and exchanges, enabling quick execution and competitive pricing. The platform offers much advanced charting tools, technical indicators, and customizable layouts to traders.
TradeStation:
TradeStation is known for its best customization options and advanced charting capabilities to the traders. The platform offers advanced charting tools along with various other technical indicators, drawing tools, and studies for in-depth analysis. It’s best for the traders who want to create and automate their strategies.
Best Day Trading Stocks
Apple Inc. (AAPL):
Apple is one of the world’s largest and best technology companies, known for its consumer electronics, software and services. It is often considered a popular choice for day traders due to its high liquidity, trading volume, and brand recognition.
Amazon.com Inc. (AMZN):
Amazon is a global e-commerce and technology shark known for its online retail platform, cloud services and various other ventures. Amazon’s earnings reports and updates about its various business segments can lead to specific market reactions.
Carvana Company (CVNA):
Carvana is an eCommerce platform for buying and selling used cars. It is known as a traditional model of auto sales and has attracted the attention of traders due to its growth and price movements. News related to Carvana’s expansion plans, financial performance, and industry trends leads to price movements, creating trading opportunities especially for day traders.
Day Trading Apps
Thinkorswim Mobile (TD Ameritrade):
Thinkorswim Mobile is the mobile version of the Thinkorswim trading platform by TD Ameritrade. It provides advanced charting tools with technical indicators, drawing tools, and studies for in-depth analysis for the traders.
E TRADE Mobile:
ETRADE Mobile is the mobile app offered by ETRADE, providing a wide range of trading and research tools for active traders. The app offers customizable charts with technical indicators and drawing tools for technical analysis. Also, traders can execute trades, monitor positions, and access real-time market data from their mobile devices.
Webull:
Webull is a commission-free trading app that has gained popularity among active traders for its interface and wide range of features. The app provides customizable charts with technical indicators and real-time market data.
Day Trading Success
Success in day trading means making smart decisions when buying and selling stocks within the same day. It’s all about studying the market, analyzing it, using tools to predict where prices might go, and response quickly. Successful day traders stay careful of risks, they have a clear plan, and don’t let emotions take over their mindset. They always stay informed and stick to their strategies to perform well in trading.
Day Trading Books
“How to Day Trade for a Living” by Andrew Aziz:
This book is often recommended for beginners as it provides a comprehensive introduction to day trading. It covers essential concepts, technical analysis, risk management, and practical strategies.
“Market Wizards” by Jack D. Schwager:
This book offers valuable insights from interviews with successful traders. Hearing about their experiences, strategies, and mindset can provide you with a broader perspective on trading. It’s a great source of inspiration and learning from real-world professionals.
“The Art and Science of Technical Analysis” by Adam Grimes:
This book goes into the concepts and principles behind chart analysis. It is not focused mainly on day trading, but the insights provided in this book can greatly improve your ability to read and understand price movements and patterns, which is an important skill to successful day trading.
Swing Trading vs Day Trading
Swing trading involves holding trades for a few days to weeks, with the goal of making large price profits with less stress. Whereas day trading means opening and closing trades within the same day, making quick profits in the short period of time, requiring constant attention, fully focused and being highly stressed. The best choice depends on your mindset, time, risk tolerance, and commitment to it.
Remember that day trading involves significant risks, and it’s important to do thorough research, create a clear trading plan, and practice disciplined risk management. The best stocks to day trade can change based on market conditions, so it’s important to be aware of news events and technical developments that may affect the stocks you choose.
Frequently Asked Questions (FAQs)
Is Day trading Worth it?
Day trading can be risky and stressful due to quick decisions and constant monitoring. There is potential for profit, but most of the face losses of their early stages of day trading. Consider and polish your skills a little bit, risk tolerance, and time commitment before you begin.
Is Day Trading legal?
Yes, day trading is absolutely legal. It involves buying and selling financial assets within the same day. Just follow rules and regulations to trade responsibly.