Learning how to day trade is not a quick process- it takes time! This can be difficult for people who are in a hurry to make money, or have a hard time sticking to a schedule. Many novice traders give up quickly because they believe that they will never be able to put in enough hours into their trading system.
Fortunately, there are ways to cut down on the amount of time needed to learn the basics of day trading. In this article, we will discuss some strategies for getting started as a trader & ways to make progress. We will also look at some things that can sometimes prevent individuals from investing in the right way.
So what are some easy ways to get started? Here we shall talk about ideas for learning how to day trade!
Watching YouTube videos
YouTube is a great resource for new traders. There are so many video covering all aspects of trading, but watch the videos with an open mind! Some traders will claim to have way more experience than they have, because they are trying to sell you a course or a signals service. Let’s face it, how much trading & investing experience does a YouTuber have if he is only in his 20’s. For example, by the beginning of 2022, anyone who was less than 30 years old had probably never experienced a sustained bear market in stocks, where the stock market indices fall more than 20%. Although they would have experienced a bear market in crypto throughout 2022, when many coins crashed over 70%.
This was a shocking surprise for young traders who thought investments only went up in value. Unfortunately there are tragic stories all over social media of fortunes made and very quickly wiped out.
Other YouTube traders will show you huge profits made over a very short period of time, because of course we all want to get rich quick don’t we? HOWEVER if it sounds too good to be true, guess what?? Nobody makes enormous profits consistently in longer term from day trading. Eventually these guys suffer a huge loss as markets conditions change and their strategy no longer works.
To be a day trader requires supreme patience & self-discipline. It requires tremendous understanding & execution of risk management. It is way to easy to break the important rules of trading. Sometimes breaking the rules leads to a big profit. The problem is that this experience convinces the trader that the rules can be broken. Eventually breaking the rules will lead to a huge loss. No question about it.
Get a mentor.
There are many ways to gain experience including by trading in the market yourself & talking to others who have a lot of experience about the art of trading.
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Of course the best way to learn day trading and gain experience is
- Open a trading account and start executing trades.
- Enroll in a course or even better, find yourself an experienced trader who has already made all the mistakes possible, over and over again before mastering the techniques required to be a consistently profitable trader. But who to trust with that experience is not always easy!
When you are looking for education, obviously find a reputable mentor. Do your homework & search carefully for GENUINE reviews from former students.
When you are ready to start putting in to practice all that you have learned from your course, YOU MUST START BY TRADING FAKE MONEY IN A DEMO ACCOUNT
Learn to trade from someone with a 35 year career:
12 years on the LIFFE trading floor (from 1987).
15 years market making interest rate & index options.
3 years options market making when trading went digital.
5 years derivatives broking (investment bank clients).
15 years practising technical analysis of financial markets.
12 years providing technical analysis signals to investment banks and retail traders.
10 years trading Forex, gold & index futures (personal account).
20 years of teaching traders.
Why should you trade a demo account?
What makes day traders very successful? They are able to take advantage of small price swings either way. By buying or selling at a lower price, they make enough money off of the drop for the time invested in the position.
But this also means that they will lose money if the position doesn’t go up again soon so they must be careful about their investments. This is where having a mentor comes into play as they will watch your trades and help you determine when to pull the trigger on a sale or purchase. No matter what skill you learn in life, you have to practice what you are learning before you become good at that skill. When it comes to risking money, it could not be more important to practise on a demo account.
This is available at all online brokers. I strongly suggest trading a demo account for at least 3 months before you start to risk your own capital.
You would not attempt to drive a car after studying driving techniques all weekend on YouTube would you? Obviously not. You would have an experienced driver sit next to you while you learned how to make the car move, then learn how to control the car safely & eventually start practicing on the roads.
So why do new traders think they can instantly become profitable because they have a trading account and are able to click to buy & sell buttons on their account?
How much capital do you need to trade?
Here is a question I am often asked: How much capital do I need to make to make $500 per day.
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Easy answer: Enough capital to risk $200 to $300 per day, so that hopefully you execute up to 3 trades per day. If 2 or 3 of the trade work you could make a profit of $300 to $500. HOWEVER YOU MUST BE ABLE TO MANAGE YOUR RISK & EBSURE LOSSES Are ALWAYS MCH SMALLER THEN POTENTIAL PROFITS.
I would suggest you need $10k in capital to realistically aim for $500 per day profit.
Risk management is key.
Expect to lose money in the first year – progress will be slow, which is why we use a demo account.
Trading when markets are busier, meaning there is more volume, can often be a better time to try to make quick trades. I would suggest when Europe opens at around 7am to 9am GMT and again at around 1pm to 3pm when the US markets open.
Create a trading plan
The next step in learning how to day trade is figuring out what kind of trader you want to be. This will determine which strategies are most appropriate for you as a person and what time frame is best for you to manage your trades.
There are three main types of traders: scalpers, swing traders, and position traders. Scalping does not require much preparation other than knowing when to enter and exit a positions.
Swing traders can go into very long positions without really having any plans beyond that. They have one entry and one exit price they strive to hit during their investment period.
Position traders need to know when to enter and exit a stock because it can make a big difference in whether or not they succeed or fail. A lot of people do not learn this concept until later in their investing career.
The next key element of day trading is choosing your position types or what we like to call “trading strategies.” These are typically broken down into two main groups: short term traders focus on buying (selling can be similar) stocks that they hope will drop in price, whereas long term investors buy stocks that they believe will go up in value.
Day traders usually take one of these strategies every time they plan to enter the market.