How To Get Started Day Trading Stocks – Day trading is exploding in popularity as more and more people seek financial freedom and the ability to live life on their own terms.
It takes time and dedication to learn the intricacies of this fast-paced world of day trading, but with the right information and careful planning, you can put yourself in a position to earn a living.
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In this detailed guide, I’ll delve into the world of day trading and demystify what it is we really do and how you can get started.
A Guide To Day Trading
Day trading is a speculative trading style that involves opening and closing a position on the same day.
Quick example: if you open a new position at 10 am. m. and closes it at 2 p.m. m. on the same day, you have completed a daily operation. If you were to close that same position the next morning, it would no longer be considered a day trade.
Day traders, or active traders, generally use technical analysis and a trading strategy to try to make a profit in a short period of time, and often use margin to increase buying power.
A successful day trader doesn’t just pick any stock and try to trade it. There has to be some kind of strategy related to money management rules and parameters.
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Day trading works by capitalizing on short-term price movements in a stock through the active buying and selling of shares.
Day traders look for volatility in the market. Without short-term price movement (volatility) there is no opportunity. The more a stock moves, the more profit a trader can make or lose on a single trade.
That is why traders must exercise excellent risk management skills to keep losers small and let winners run.
You can think of day traders as a risk manager. We put capital at risk to try to make more money, but if we mismanage our risk, we will have a hard time making money consistently.
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This helps take the emotion out of trading, which in turn prevents the trader from over-managing his position (which has been shown to have a long-term negative impact).
Before you start day trading for real money, there are three things you should do and have:
With years of day trading under my belt, I can confidently say that day trading is an extremely difficult skill to master, let alone master.
Your ability to earn money is 100% based on your ability to perform day in and day out.
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Attempting to day trade without any training or education is a recipe for disaster and loss of capital.
The first step to learning day trading terminology and technical analysis is reading books and watching videos! This is the process of acquiring knowledge. But remember, just because you’ve read a book on skydiving doesn’t mean you’re ready to jump out of a plane!
One of the challenges of learning to trade is the overwhelming amount of information out there. Many times the things you learn will be contradictory.
The reason is that technical analysis or entry and exit requirements that work for one strategy may not work at all for another strategy.
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It’s not helpful to your long-term success to learn a little bit of 100 different strategies. It is much better to learn as much as possible about a strategy that has proven to be profitable.
So as you look at who you’ll be learning from, it’s always important to ask yourself, is this person really profitable?
I pride myself on being one of the most transparent traders out there with all my trades verified and even posted on our YouTube channel.
Unfortunately, you will find that very few people provide proof of profitability. The information they provide should always be taken with skepticism.
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Whether you decide to learn more in my premium classes or learn from someone else who has proven profitable, the first step in learning to day trade is to study.
If you’re curious, you can see that our courses offer an extensive curriculum that covers everything you’ll need to build your day trading business. You can check the course agenda here.
It took me about 2 years to develop the strategy I traded with. As an aspiring trader, you have two options. You can adopt a strategy that is already being actively traded by other traders, or you can create your own.
If you create your own, be prepared to spend months, or even years, backtesting and refining before you can trade for real money.
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Most beginning traders, instead of trying to reinvent the wheel, decide to master a strategy that has already proven to be profitable. After mastering that strategy, traders may decide to put their own spin on it by making a few changes.
Regardless of your approach, it is important to have a specific setup, trading system or methodology that you are comfortable with when you start trading.
It allows you to build proficiency at something, instead of trying to find opportunities for multiple setups at once, without getting really good at any one setup.
The important thing is to consistently stick to one thing at first and master it. If you try to trade 5 different strategies at the same time, how do you know if one of them is individually profitable or not if one of the others is costing you a lot of money?
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You may have taken some quality trading courses, read a book or two and been watching our daily trading breakdowns and you feel like you are ready to trade.
But the reality is, you’re probably not ready. Beginning day traders grossly overestimate their ability, start trading with real money and lose.
Intellectually understanding day trading and being able to react to opportunities and execute them effectively in real time are two different things.
You need a trading simulator where you can practice your strategies in real time until you are comfortable with order entry and trade management.
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If you can’t make money on a trading simulator, you probably can’t make money on a real account!
Jumping into a live trading account at once is one of the worst moves a beginning trader can make.
This is where all your money will be and you will trust them to provide fast executions at a reasonable price.
There are a few things to look out for when buying a broker: trade execution, commissions, charting platform.
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They route the order to the market on your behalf, often combining your order with the orders of other clients and giving priority to certain routes over others when selling your order flow.
This way, if there’s a bid or ask you’d like to trade, you can simply grab that liquidity instantly, rather than waiting for the stock to trade at your price long enough for your broker to fill the order.
Day traders trade so frequently that commissions can be the difference between a profitable month and a losing month.
Typically, when it comes to day trading brokers, there are two pricing structures: per share and per trade. The choice depends on the size of your position.
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Per Share: The per share structure is popular with day-trading brokers and proprietary trading firms. Typical rates per share offered to less capitalized retailers are $0.005 per share traded.
Per Trade – This is the most common commission structure in the industry. You simply pay a fee (most often around $5.00) per trade you make. When you reach a certain average position size, a fee of $5 per trade becomes almost inconsequential.
Quick note: It’s important to understand that just because a broker has cheaper commissions doesn’t automatically make them a better choice. Some brokers get paid to route your order flow to certain market makers, which can take longer and result in worse execution prices. That is why it is important to make sure that they have direct access to the market as we mentioned above.
A good stock scanner is necessary for most day traders, especially those who trade very short time frames.
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Most scanners can scan in time frames as small as ticks and as far as weeks, all while updating results in real time.
The reason why scanners are so important is because you need to trade with the correct actions. Stocks that move with some kind of catalyst at relatively high volume.
Stocks that are in play are more likely to have tracking breakouts as well as trend in a specific direction throughout the day.
Having a robust and reliable charting platform is great for viewing price action and helps when making trading decisions. Unfortunately, many broker charting platforms do not meet the demands of active traders, which is why we look to third party charting software.
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ESignal is probably the most robust and comprehensive day trading charting software on the market and is the one we use and recommend.
They are not the cheapest, but we have an exclusive deal with eSignal for Warrior Trading students to save 25% on their charting packages.
Once you have learned a strategy and are trading it profitably on a simulator, you can now begin to consider trading on a live account.
One of the biggest tips we can offer to new traders on a live account is to take it easy.
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Don’t dive head first and