10 steps to become a day trader

In a world where everyone can easily access online trading, why are only a few people able to become day traders? After all, which investor did not dream of becoming a day trader-working comfortably on a home computer, being your own boss, and watching profits roll in? Although many people desire it, few people really succeed.

Key points

  • Day traders actively participate in the market and use intraday strategies to profit from the rapid price changes of a given security.
  • To become a day trader, you must ensure sufficient capital and access to a reasonably priced and fully functional trading platform.
  • Intraday trading may be a profitable activity, but it also comes with a high degree of risk and uncertainty.
  • A thorough understanding of markets, financial securities, and behavioral finance—as well as personal discipline and focus—is necessary for success.

What do day traders do?

Day traders often actively buy and sell securities many times a day, but will not hold any open positions the next day. All buy and sell positions in a trading day are closed on the same day before the market closes. Day traders are different from active traders who may hold positions for multiple days, and they are also different from investors who invest in long-term investments. Day traders also use leverage to increase their intraday trading exposure.

How to become a day trader

1. Conduct a self-assessment

Successful day trading requires a combination of knowledge, skills and characteristics, as well as a commitment to lifestyle. Are you proficient in mathematical analysis, rich in financial knowledge, and understand behavioral psychology (both for yourself and others), do you have an appetite for entrepreneurship? Contrary to the cognitive concept of easy living or easy money, day trading actually requires:

  • Long work time
  • Rarely get off work
  • Continuous self-study without guidance
  • Ability to take risks
  • A never-ending commitment to the daily activities of work

The right mentality is the most important (and most important) requirement to become a day trader. Don’t try day trading unless you are ready to invest time, learn by yourself, and be prepared to take risks and suffer losses.Favorite book Achieve financial freedom your way By Van K. Tharp and Trading psychology Author Brett N. Steenbarger is a great resource to learn more about day trading and conduct self-assessments.

2. Arrange sufficient funds

No one can continue to generate profits. Intermittent and long-term losses are part of the day trading game. (For example, a day trader may suffer eight consecutive losing trades and only make a profit in the ninth trade.)

In order to deal with these risks, day traders must have sufficient capital buffers.As Van K. Tharp in Achieve financial freedom your way, Entering the trading world with a small amount of funds is a sure way to failure. Before quitting his job for a full-time transaction, Tharp recommends at least $100,000 for the transaction.Novices can start with a smaller amount, depending on the trading plan they choose, the frequency of trading, and other costs they bear. For day trading, you need to maintain a balance of USD 25,000 in your trading account.

3. Know the market

Day traders need a solid knowledge base of how the market works. From simple details (such as exchange trading hours and holidays) to complex details (such as the impact of news events, margin requirements and allowed tradable instruments), traders need to have a broad knowledge base.

4. Understand securities

There are different trading methods for stocks, futures, options, ETFs and mutual funds. Without a clear understanding of the characteristics of securities and trading requirements, initiating a trading strategy may lead to failure. For example, traders should know how the margin requirements for futures, options, and commodities significantly affect trading capital, or how the temporary allocation or exercise of option positions can completely disrupt trading plans.

A lack of understanding of these security-specific necessities can lead to losses. Aspiring traders should ensure that they are fully familiar with the trading of selected securities.

5. Set up a trading strategy

Novice traders entering the trading world can start by choosing at least two established trading strategies. In the event of failure or lack of trading opportunities, both will serve as backups for each other. As experience accumulates, one can turn to more strategies (more complex) later.

The trading world is highly dynamic. Trading strategies can make money continuously for a long time, but they may fail at any time. Need to pay close attention to the effectiveness of the selected trading strategy, and adjust, customize, dump or replace it according to the development situation.

6. Integrate strategy and plan

Simply choosing the right trading strategy is not enough to succeed in the market. The following considerations require additional strategies to come up with a trading plan:

  • How to use the strategy (entry/exit strategy)
  • How much funds will be used
  • How much money will be used for each transaction
  • Which assets will be traded
  • How often to make a transaction

7. Practice money management

Suppose you have a trading capital of 100,000 USD and an excellent trading strategy with a success rate of 70% (7 out of 10 transactions are profitable). How much should you spend on the first transaction? What if the first three transactions fail? What if the average record (7 out of 10 profitable trades) no longer holds true? Or, when trading futures (or options), how should you allocate funds to meet margin requirements?

Money management can help you meet these challenges and estimate your potential profitability. Even if only 4 out of 10 trades are profitable, effective money management can help you win. Practice, plan, and structure transactions according to designated fund management and capital allocation plans.

8. Research Brokerage Fees

Intraday trading usually involves frequent transactions, which leads to high brokerage costs. After in-depth research, choose a brokerage plan wisely. If you plan to make one or two trades per day, then a brokerage plan based on each trade will be appropriate. If the daily transaction volume is high, choose a staggered plan (the larger the transaction volume, the lower the effective cost) or the fixed plan (unlimited transactions at a fixed high fee).

In addition to transaction execution, brokers also provide other trading utilities, including trading platforms, comprehensive trading solutions (such as option portfolios), trading software, historical data, research tools, trading alerts, and charts with technical indicators and other functions application. Some features may be free, and some features may pay a certain price, which will erode your profits.

It is recommended to select functions according to your transaction needs and avoid subscribing to unnecessary functions. Novices should start with a low-cost basic brokerage package that meets their initial trading needs, and then choose to upgrade to other modules when needed.

9. Simulation and backtesting

After the plan is ready, simulate it on a test account with virtual currency (most brokers provide such test accounts). Alternatively, the strategy can be back-tested based on historical data. For a realistic assessment, please consider the brokerage costs and subscription fees of various utilities.

10. Start small, then expand

Even if you have enough funds and enough experience, don’t shine in the first transaction of the new strategy. Try a few new strategies and increase your bet after the taste is successful. Remember, the market and trading opportunities will always exist, but once funds are lost, it may be difficult to re-accumulate. Start with the small things, test the establishment, and then do the big things.

Bottom line

Aspiring traders should beware of websites and courses that promise foolproof day trading success or unlimited profits. The percentage of day traders who succeed by devoting time and energy to developing trading strategies and following these strategies religiously is limited.

In this huge trading world, day traders rely on themselves. Before giving up your job to become a day trader, please make sure that you have the motivation to continuously learn, design your trading strategy, and be responsible for your decisions and actions. If you want to enter the world of day trading, you can use one of the best stock brokers for day trading.


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