How to Day Trade – Basic Trading Tips

Before you learn day trading, it’s important to get a good trading education so you can learn how to day trade knowledgeably, minimize risk, and not be blindsided by unpleasant surprises.

Day trading is defined simply as entering and exit a trade during the same trading day. Thus if you open a trade position after the market opens, and then exit that same position before the market closes, you have made a day trade. For at least one day, you were in fact a day trader … whether you really know how to day trade profitably or not!

Remaining in a trade for a few days is generally considered “Swing Trading” and is also a viable trading approach, however it exposes you to “overnight risk” – meaning that the market can move dramatically against you while the exchange is closed and you can’t get out of your position.

Here are some basic day trading tips for the beginner (there are more details to these rules are they are subject to change so please consult your broker and do not rely on this information):

  • You need at least $25,000 in your account to consistently day trade stocks.
  • Futures often require only a few thousand dollars for day trading (margin rates can vary by broker).
  • Forex often requires only a few hundred dollars for day trading a “mini” account (there are people actively working to get this amount increased).
  • While leverage allows you to trade with a smaller account, that leverage can work against you also – causing you to lose money faster than in a none-leveraged account.
  • It is extremely unwise to choose a market or broker because they allow you to trade with a small account. Many beginners do this because they don’t have much money, but they still want to trade. They are “under-funded,” a common reason that beginning traders fail.
  • Never, ever trade with money you can’t afford to lose. And remember, with a leveraged account, it is possible to lose more than is in your account!
  • It is not a get-rich-quick exercise. It is inherently risky, and even experienced traders who have been successful, have been known to experience large losses.
  • Day trading does not provide a regular income like a job. It is normal to go through cycles of profits and losses (known as “draw downs”).
  • Trading is deceptively difficult. It is absolutely imperative that you learn how to day trade professionally by getting an excellent trading education, take a thorough day trading course (or preferably several), and develop a day trading system that is proven over time and with your own experience, traded on a simulator, before you beginning risking your own money.
  • Most people fail!

Now that I’ve painted a bleak (but realistic) picture on what it takes to learn day trading, why would anyone want to learn how to day trade?

If you are one of the few who puts in the time and effort and finds success, it can be extremely lucrative and provide a wonderful lifestyle of freedom. When you truly learn how to day trade profitably and consistently, it can be fun, rewarding, and provide a lifestyle that most only dream about.

For more from Barry, visit Top Dog Trading.