A Beginner’s Guide to Succeeding with Day Trading for A Living

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ay trading has gone from the first days of Wall Street tape readers to being accessible to anyone with a computer and an internet connection. Technology has changed the way the investment industry functions and so the role of day trading has changed, too.

What is Day Trading?

If you’re new to the world of investing, you may have heard of day trading but not understand it. So, what is day trading? By definition, day trading is buying and selling one or more security positions within a single day. Day traders do not hold their positions overnight. Day traders look for small-percentage profits on each trade, often less than $1 or $2 per share.

Popular Day Trading Strategies

  • Scalping: Selling a stock as soon as it becomes profitable to do so is called scalping. Commissions, interest costs, and overhead fees need to be taken into consideration for scalping to be profitable. Scalping is a good beginner strategy as long as your expenses are accurately accounted for before taking profits. Day traders who prefer scalping should be just as willing to cut losses.
  • Fading: Plenty of day traders seek to counter traders who are willing to take a long position by shorting the stock that day. These short sells create an imbalance between buys and sells, driving stock prices downward in favor of the day trader.
  • Momentum: Day traders who buy a stock when it is increasing in volume and price are known as momentum traders. Day traders who trade momentum can be both long and short position traders for making a profit.
  • Premarket Trading: Seasoned day traders will play the premarket stock trading game.
  • Daily Pivots: Day traders who look at the support level of stock and buy it hoping for a high sale price are trading on the daily pivot.  Daily pivoters can short sell the stock at resistance and buy back at support.

Arbitrage opportunities also exist for day traders, but beginners should steer clear of them for now. These are heavily watched and exploited by professional traders who have analysis tools well beyond the average day trader.

Day Trading Tools

Day trading is not something you can do with no skill required and no money to invest. It also requires a great internet connection and infrastructure to support those trades.

  • Infrastructure: As an active day trader, you will need to use an electronic communication network to avoid paying broker fees. A membership to an ECN is fee-based and must be approved. Some popular ECNs include SelectNet, NYSE Arca, and Instinet. The cost of this infrastructure and customized software for analysis can be thousands of dollars each month.
  • Capital: Day traders who engage in short selling will need a margin account. Regulations on day traders require pattern day traders to have a margin account with at least $25,000 available. Experienced day traders will tell you to double or triple that amount.
  • Knowledge: The biggest difference between an experienced day trader and a new one is the knowledge gap. It is very real and it will eat you alive as a newbie. You should be willing to learn from any day trader who is willing to teach you. Technical analysis will be your best friend during this learning period as you familiarize yourself with stock charts. Several professional charting services like OmniTrader, IQ Charts, and MotiveWave can give you an advantage here.

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