Day trading is the buying and selling of stock during the same trading period. With the right strategy, day trading can be lucrative, but you have to make sure to do research beforehand. Continue reading to learn what steps to take to start day trading.
Choose What You’re Going to Trade
Many day traders trade stocks, foreign exchange/forex or futures market. Depending on your goals and risk tolerance will help determine what would be the best fit for you.
Day trading stocks means that you’ll be buying and selling shares of a company on the same day. This type of trading is probably what comes to mind when you think of day trading. If you plan on trading regularly, you will need to familiarize yourself with the Pattern Day Trader rule, which requires $25,000 in capital by law.
Foreign exchange, for forex, trading is the buying and selling of currencies. The minimum capital required is $500 to begin trading forex. While you can trade forex at any time of day, make sure to do research to learn what times work best for different pairs of currency.
Futures trading lets day traders purchase a contract for an asset or commodity at a certain price and time. The futures contracts have an expiration date for when it ends.
Learn the Terminology
If you aren’t already familiar with the markets, make sure to learn the trader terminology to make sure you understand the terms you might hear from educators, other traders, your brokerage, and other places. Here are just a few of the terms you should know:
- Ask Price: The price traders are currently asking to sell the stock at
- Bearish: The stock is expected to go down.
- Bid Price: The price traders are currently bidding a stock at.
- Bullish: The stock is expected to go up.
- Buying Power: Your cash balance, plus your margin.
- Earnings Per Share: EPS, a portion of a company’s profit allocated to a person’s share of the stock and is a large metric for analysts.
- Fill Price: The price the trades are executing at with your broker and eventually becomes your average cost.
- Margin: The line of credit to your account for trading and allow you to trade on borrowed money.
- Stock Split: An issue of new shares in a company to existing shareholders in proportion to their current holdings.
Choose a Strategy and Learn Risk Management
There are so many day trading strategies for you to choose from. Many day traders recommend finding one strategy that works for you, and to stick with it. A few examples of trading strategies include:
- Momentum: This type of trading strategy focuses on stock momentum following news releases.
- Scalp: Buying and selling the stock in a very short amount of time, usually once it becomes profitable. This is a very popular form of trading.
- Gap Trading: This type of trading focuses on when a stock moves sharply up or down.
- Trend Following: People who follow this strategy are trading on the idea that if a stock is rising or falling, it will continue for a period of time.
These are just a few day trading strategies, and make sure to do research on each to determine which is best for you.
Risk management is important so you can better protect yourself from massive losses. The general rule is to never risk more than 1% of your total capital on a single trade, and no more than 3% of your total trades. As always, make sure to do the proper research, and only risk what you are comfortable with.
Practice, Practice, Practice
Before you begin trading, you’ll want to practice your strategy. The way to do this is to use a paper trading account or trading simulator to practice with virtual money. The purpose of this is to put yourself in the situation of the markets and see if your strategy works out well.
Once you’ve practiced, it’s time to get your account set up and start trading.
Set Up Your Brokerage Account
If you haven’t already, make sure you create your brokerage account so you can execute trades. Some brokers offer paper trading within their platform. Your brokerage will be executing your trades on your behalf.
Nowadays, most brokerages are commission-free, so the extra features they offer will help you determine which is the best option for you. Find which brokerage is right for you.
Once you’ve done your research, decided on your strategy and practiced, it’s time for you to start day trading. Remember, make sure to do the proper research before you begin day trading. Don’t be afraid to start slow and work your way into day trading.
Disclaimer: Benzinga is a news organization and does not provide financial advice and does not issue stock recommendations or offers to buy stock or sell any security. Benzinga Pro is for informational purposes and should not be viewed as recommendations. We will never tell you whether to buy or sell a stock. It will only inform your trading decisions. You can find our full disclaimer located here.