Complete Guide to Day Trading

March 31st 2022 16 min read

Wouldn’t it be great to take a comprehensive journey through every corner of day trading that’s perfect for beginners and experienced traders alike?

Day trading is a great way to acquire financial independence.

This informative article gives its readers access to information and relevant details about day trading. The article does not only describe the basics of day trading but includes day trading strategies along with day trading techniques for beginners and experts. Readers will also understand the risks involved, the tools they need, and effective day trading tips.

There was a time when trading was only reserved for those who worked in trading houses, financial institutions, and brokerages. With the advancement in technology, trading became accessible to retail traders and investors.

If you have been thinking about getting into trading or have already started your trading career, you should continue with this article.

What is Day Trading?

Strategies and Techniques for Day Trading

Day trading is the activity of buying and selling financial securities on a daily basis, with the aim of making a profit.

The act of trading can be very lucrative and fun, and there are many well-known trading strategies that allow traders to buy and sell financial assets. The sales of these securities are done during working hours of the day, and the activity is geared towards making a profit. It is important to note that day trading is done on a short-term basis. The trader opens his or her trade position during the day and closes it before the end of the day.

Day trading for beginners comes with some challenges because most newbies might not be prepared or well-educated. Beginners must know that even experienced traders go through the highs and lows when trading and have to experience some losses.

Day trading is something all aspiring traders should get on with because profits and losses are in your hands. Moreover, you can find it on the news what potential of improving investors’ returns on investments. You will identify that some stocks have performed well historically while others have not been so lucky. Regardless of the market history, it is worth partaking in.

Before the world experienced the COVID-19 global pandemic, retail trading wasn’t as popular as it is today. Traders were involved in other financial activities and side hustles. The pandemic brought some surprisingly good changes alongside the bad ones. During the lockdown, the market saw an increasing number of traders engaging in retail trading. Even those who had little or no knowledge about trading became retail traders.

90% of inexperienced traders have lost a significant proportion of their capital due to lack of proper training and education.

It is said that "education is key", so it should not be taken for granted. Learn some strategies on your own, attend masterclasses, and do what it takes to be knowledgeable in the trading field so you can improve your chances of profitability.

Beginners' FAQs

Here are some of the most commonly asked questions by newcomers and beginners.

How much money do you need for day trading?

Day trading is not a cheap activity that you can swirl in and out of. The rules of trading vary, and they’re distinct to each region. The amount a day trader is usually advised to have is $25,000 – to make room for flexibility, losses, and gains in the traded stocks. However, it is advised that beginners start with demo money first before using real money. Although, you can start real trading with any amount of money, it is recommended to start small and build your portfolio from there onwards.

How much are you looking to make per day?

This is a tricky question because the market determines how much money an individual would make from trading. To realise the earning potential from day trading, traders need to create a winning strategy that works well in different situations. The markets in which you trade can influence your earnings because different markets come with various advantages.

What should be my initial investment in day trading?

It is highly recommended that you start trading with a demo account for the experience because day trading for beginners can be technical. So, before using your real money to trade, try out the demo versions. However, you can start trading with as little as $100. The amount you start trading with also depends on your broker and the strategy you intend to use. So, if your broker permits it, start trading with $100.

Is day trading halal?

Many Muslims are unaware of the religious status of trading, not knowing if it is haram or halal. Nevertheless, day trading is seen as generally permissible, but some scholars may not agree with that.

Learn how to day trade.

Strategies and Techniques for Day Trading

Before a trader can make good headway in the market, a strategy is needed. There are several techniques, so you have the liberty to choose which one suits your style. Some of the strategies and techniques in day trading include scalping, trend following, range trading, price action trading, rebate trading, trading the news, and so on. These strategies are meant to maximise profits and limit your losses.

Trend following

This involves a trader following a day trading indicator. When the trend shows that prices are rising, the trader buys; when the trader notices falling prices, he sells, or shorts. The trend-following strategy is based on mere postulation. In this strategy, traders believe that since prices have been rising or falling in a pattern, the trend will continue to repeat itself.

Pros Pros
  • Traders could benefit from the trend.
Cons Cons
  • Premature profit due to selling short.

Range Trading

This day trading pattern can also be referred to as "channel trading." It starts with a good knowledge of the current price action. Here, the investor closely inspects the patterns of the market to know how trades go during the day. The traders or investors also dictate the difference between the ups and downs that occur in trades. The day trader indicator is sure that when pricehits a peak, it will always correct itself to come back to a lower point.

Pros Pros
  • Traders can buy low and sell high with reasonable profits.
Cons Cons
  • The range can go against the trend.

Rebate Trading

This is one of the day trading indicators that help traders make profits capitalising on the market. A rebate is a fraction of interest that is paid by a short seller to the owner of a particular stock or shares that is being sold out to.

Pros Pros
  • It is a profit-making strategy.
Cons Cons
  • High cost of maintaining an account.

Scalping

In this pattern of day trading, the indicator has the option to explore all prices. The exploitation of small prices is bound to happen as the prices have gaps that are formed as a result of a bid/ask spread. With this strategy, traders would have to enter and exit a position as fast as possible.

Pros Pros
  • A great number of small profits.
Cons Cons
  • Losses can be incurred due to limited time.

Price Action Trading

This trading strategy has to do with the relations that exist between price movements and recent price levels. It tells traders how strong the relationship is. This strategy can be profitable for traders as they operate based on information that demonstrates consistentcy in real life. The pattern shows how prices respond to the changes in support and resistance.

Pros Pros
  • Trade based on trusted price history.
Cons Cons
  • Lagging indicators can mess up the pattern.

Trading the News

Day trading patterns are maintained through trading the news as well. This strategy helps traders make their trading decision based on fundamental news. If the news turns out to be good, the investor buys; but if it turns out to be bad, the investor sells short. There is a high chance of volatility which can translate into profit or loss.

Pros Pros
  • It could lead to great profit.
Cons Cons
  • It comes with high risk.

Tips for Day Trading

Tips for Day Trading

Day trading is a fun activity to engage in, if you’re a beginner or even an expert trader. Different trading tips help all traders get to the top of the chain. The market is said to be competitive, and only the fittest can survive the heat.

Best time to day trade

Day trading can happen at any point of the day, but the best time to day trade is between the hours of 9:30 am and 10:30 am. This duration has been especially chosen for day trading because it offers big moves to traders in a short span. Beginners and other traders can trade till 10:30 am, but expert traders tend to trade until 11:30 am. Moreover, the market volatility and volume tend to wear off at that time, so your trades stay on track.

The best market to trade-in

Now that you’re aware of the strategies used in day trading patterns and the best time of the day to trade, the next thing to consider is the best market to trade in. There are several markets out there with great potential, but the major ones are futures, stocks, cryptocurrencies, and forex. When starting your day trading, focus on one market at a time. Trading on multiple markets will limit your profit potential, unlike trading in one market.

Quote Day trading entails focus, discipline, and diligence.

Historical statistics

This is a very important tip to pay attention to. In trading, history tends to repeat itself. It is prudent for both beginners and expert traders to study historical statistics as a reference point. With a vast knowledge of the history of the market, you are more likely to become a successful trader with a high chance of being profitable.

Constantly keep learning

They say that knowledge is power. Be sure to get a basic knowledge of trading procedures to keep up with the market. Reading the news and keeping up with trading events will surely give you headway in the market.

Start your skill growth journey with Perfect your Trading

Tools for Day Trading

Before you kick off your journey into the trading world, you need to get some tools. These tools will help you better understand day trading. It also helps you enter trades with more assurance.

What do you need before you start day trading?

Stock scanners: These are day trading indicators or tools that are used by investors and traders to detect stocks that match their criteria. These tools also help in identifying a set of criteria that aligns with the metrics for investments as well as trades.

Stock screeners: This tool allows traders and investors to go through a vast number of stocks to discover which ones match their trading goals and criteria. A stock screener can deliver signals only if specific parameters have been provided.

Charting platform: This day trading tool enables investors and traders alike to generate trade charts. It also enables them to carry out technical analysis on stock charts, forex charts, crypto charts, and so on.

Brokerage account: An account with a broker allows traders to buy and sell a wide range of investments like bonds, ETFs, mutual funds, and stocks. Your funds are available to you regardless of the setting of the account.

Remember that having all these tools does not guarantee success in trading.

However, it will increase your likelihood of picking up the skill. So do read a book about day-trading. Some of the best trading books include One Good Trade, Forex Price Action Scalping, and Mind over Markets.

We published a Reddit-style blog whereby visitors can vote for the best trading book. Have a look for yourself. Top 15 Day trading books

Difference between Day Trading and Swing Trading

Traders who are always active in the market have categorised themselves into two groups, including day traders and swing traders. Note that traders in these two categories are profit-oriented and seek to make a profit on a long-term or short-term basis.

Day trading entails the use of technical analysis and some charting systems to execute trades every day. But swing traders conduct trades based on swings in currencies, stocks, and commodities that happen over a few days or even weeks.

Day traders carry out trades in a single day but swings traders carry out trades over a period of a few days. The day traders have more potential to make a career out of trading, unlike the swing traders. Traders have the liberty to choose which one they wish to become.

Day traders make multiple trades per day, but swing traders make several trades per week. Day traders use to buy and sell signals on a short-term basis, but swing traders make use of momentum indicators and utilize trends.

Difference between Day Trading and Spread Betting

Day trading allows traders and investors to buy and sell securities they do not possess in a single day. On the other hand, spread betting allows traders to bet on assets and securities that they do not own. The bettors on spread speculate about which asset will rise and which will fall. Their speculations are dependent on the broker's prices. These topics have sparked several intense debates on some platforms, that’s why it is important for you to inform yourself before making a final decision.

Summary

Day trading has become a little contentious in some areas; however, it can be a good way to make money if the traders put their mind to it. In the markets, day traders are said to play a pivotal role in maintaining the liquidity and efficiency of the market. Day trading has become popular among beginners and retail tradersThat being said, it is best done by those who have taken time to acquire and master the skills.

Learn Day trading with Perfect your Trading