How to Day Trade for Living: A Beginner’s Guide

If you’ve dreamed of having the autonomy to choose your own working hours, free from the confines of a 9 to 5 office job, day trading could well be the solution. This is an industry where your dedication and insights determine your success; one which offers a huge array of opportunities and paves the way for traders ready to embrace the dynamic and exciting world of financial markets.

In this guide, Funded Program takes you through everything there is to know about day trading, examining all the details and providing achievable tips for how to develop a career in the industry. The following sections offer valuable insights for traders regardless of their level, from newcomers to the arena just getting started through to experienced professionals aiming to refine their approach, and what you should know about prop trading firms.

What is Day Trading?

In short, day traders aim to exploit short-term price movements in the markets, executing trades within a single trading day. However, day trading is not just about mere transactions; it requires a strategic approach backed by a distinctive skill set and a thorough understanding of how markets function. In contrast to long-term investors, who must wait for their investments to mature, day traders capitalise on the market’s fast movements, profiting from both upwards and downwards trends. To be a successful day trader, you need to master concepts like market orders, limit orders, and stop orders, as well as being able to spot patters, interpret candlestick charts, and deploy technical indicators.

How to Trade For A Living: How Does Day Trading Work?

This section details the systematic approach required by all successful day-traders, as well as how to design a clear strategy.

Reading and Interpreting Stock Charts:

Understanding price action: A thorough understanding of how an asset’s price moves over time (in other words, price action) is an important element of day trading. It’s vital to identify key concepts like support and resistance levels, which when viewed on a chart enable traders to anticipate potential price reversals or continuations, thereby providing valuable insights into market sentiment.

Trends: Successful day traders are good at spotting trends and then capitalising on them, by using them to align trades with the prevailing market direction. Analysing trends involves grasping their different phases (uptrends, downtrends, and sideways movements), employing trendlines, and using moving averages to identify trend reversals or confirm ongoing trends.

Chart patterns: Chart patterns enable traders to deploy predictive analysis by providing vital insights into potential future price movements. Getting to grips with the psychology behind patterns like double tops and bottoms, head and shoulders, triangles, and flags, can help predict market behaviour from historical movements.

 

Executing Trades with Precision:

Selecting a trading platform: A trader choosing their platform is like a mechanic choosing their toolkit. It’s sensible to carefully research a number of platforms, looking at features like user interface, real-time data access, and which order types are offered. Every platform has its own set of advantages and drawbacks, so it’s important to find one that fits well with your trading style to optimise your trade execution.

Order types: There are a range of order types, including market orders, limit orders, and stop orders, which each fulfil distinct roles in day trading. Familiarising yourself with each type and getting to grips with the use of conditional orders for automating your trading strategy can help you enter and exit positions with more precision.

Position sizing: Position sizing, in other words, calculating the appropriate size for each trade based on your appetite for risk and the size of your trading account, is a crucial element of managing risk effectively. Well thought-out position sizing ensures that no single trade has an outsize effect on your overall capital, shielding you from significant losses.

Managing Risk Effectively:

Risk-reward ratios: Risk-reward ratios are essential in day trading for effective risk management. Adhering to a disciplined approach to risk-reward involves evaluating potential gains in comparison to potential losses and aiming for favourable ratios. This will contribute to ensuring that over time, successful trades outweigh the impact of losing ones, boosting overall profitability.

Stop-loss orders: Establishing effective stop-loss orders is key to limiting potential losses. Finding the optimal stop-loss levels requires a thorough grasp of technical analysis and factors like volatility. Finding an organised approach to setting these orders guarantees your exit from losing trades before they can significantly deplete your capital.

Protecting Capital: Safeguarding – and growing – your capital is another important element of success in the day trading industry. This requires recognising the significance of maximum daily loss limits (a predefined threshold which if breached means you do not trade for the rest of the day). Setting a maximum daily loss limit is a helpful proactive measure to protect your capital during tumultuous market conditions, precluding the possibility of making impulsive and potentially unwise decisions after a losing sequence of trades.

Understanding Technical And Fundamental Analysis:

Technical analysis tools: There is a whole range of technical indicators for day traders to explore, each providing distinct perspectives on market behaviour. From moving averages, which mitigate price fluctuations, to the Relative Strength Index (RSI), which assesses overbought or oversold conditions, they can help you recognise prospective trading opportunities and make better-informed decisions.

Fundamental analysis essentials: Fundamental analysis integrates a macroeconomic viewpoint into your trading strategies. A comprehensive understanding of the wider economic landscape and how economic indicators and factors like earnings reports influence asset prices empowers traders to make well-informed decisions, particularly during periods of significant market upheaval.

News and market sentiment: Keeping abreast of market news and sentiment is a good idea, as they can have a substantial impact on short-term price fluctuations. Day traders should learn to interpret news releases, economic data, and geopolitical developments, as well as acknowledging the effect of market sentiment on price action. Adapting your trading approach in response to evolving news and sentiment will improve your capacity to navigate the volatile terrain of day trading.

Chart

What Do You Need Before You Start Day Trading?

Succeeding as a day trader demands more than enthusiasm for delving into the financial markets. Below we take you through what you’ll need, both in terms of the practicalities and also your skillset:

Establish a dedicated trading workspace: Making yourself a designated area for your trading work is essential. Your workspace should offer peace and quiet and be devoid of distractions – in other words, a space where you can concentrate solely on making the right trading decisions. Take into account environmental factors like furnishings, lighting and design, creating somewhere where you will be able to keep a clear mindset while trading. Though it may sound trivial, having a well-thought-out workspace can increase your capacity to maintain discipline and stay alert in your decision-making processes.

Choose the appropriate equipment and software: Ensuring you have the necessary equipment and software is crucial for enabling your day trading to progress unimpeded. You’ll need a reliable computer, equipped with ample processing power and memory to manage multiple charts and data feeds. If monitoring a range of assets at the same time, it may be a good idea to use more than one monitor. Find a trading platform that suits your preferences and that includes real-time data, advanced charting tools, and fast order execution. Having reliable, up-to-date equipment increases your responsiveness and efficiency in executing trade, which given the rapid pace of today’s day trading industry is a competitive edge you can’t do without.

Establish reliable and fast internet communication: To put it bluntly, without quick, stable internet connection, you won’t succeed as a day trader. You’ll need adequate bandwidth to view real-time market data and execute trades quickly. Any lags or interruptions can have costly repercussions, so it might be worth installing a backup internet connection to preclude the risk of it failing at crucial moments. A dependable connection is also indispensable for executing trades with precision and staying abreast of market fluctuations.

Develop discipline and mental resilience: Nurturing emotional discipline and mental resilience is arguably the most important factor of all in day trading. The constantly fluctuating ups and downs mean traders who create a set of sensible targets and a realistic trading strategy – and then stick to them – fare much better in the industry. Dedication to ongoing self-assessment and learning can help bolster your emotional resilience, enabling you to manage the challenges that will inevitably arise in your day trading career with composure and focus.

Take Profit Trader Review 5 e1692402475531 How to Day Trade for Living: A Beginner’s Guide

What Do Day Traders Usually Trade?

Day traders can trade a wide range of financial instruments that all have their own pros and cons. The following list explores the most frequently traded instruments.

Stocks: Many day traders immerse themselves in individual stock exchanges. Stock trading entails methodically analysing company performance, earning reports and financial statements. Another aspect of stock trading is technical analysis, including chart patterns and indicators, which helps to pinpoint the ideal entry and exit points. It’s also important to remain aware of market trends and keep up to date on news concerning specific companies or industries in order to make the better-informed trading decisions.

Forex (Foreign Exchange): The forex market is also popular among day traders because of its high liquidity and accessibility. Forex trading entails navigating the complexities of buying and selling one currency against another, known as currency pairs. It’s crucial to have a thorough understanding and up-to-date knowledge of economic indicators, central bank policies and geopolitical developments. Leverage is often used to increase potential returns, but it also increases risk, so effective risk management strategies become all the more important.

Cryptocurrencies: Day traders are turning more and more to the cryptocurrency market, drawn by the volatility of digital assets like Bitcoin, Ethereum, and alternative coins. Day trading cryptocurrencies requires traders to evaluate blockchain technology, think about the distinct factors that impact each coin, and stay on top of changes in regulation. The cryptocurrency market is particularly volatile, meaning lots of day traders use technical and fundamental analysis to detect trends and potential reversals.

Commodities: Day traders also trade commodities, a sector which comprises tangible goods, raw materials (like oil, gold and silver) and agricultural products. To make well-informed trading decisions, traders need to appreciate the dynamics of supply and demand for commodities, as well as other factors which may influence their price, like weather patterns, geopolitical developments or global economic trends. Commodities day traders frequently integrate both technical and fundamental analysis into their strategies to identify profitable trading opportunities.

Options and futures trading: The derivatives market is another option for day traders, where they trade options and futures contracts. The former gives traders the right – though not the obligation – to buy or sell an asset at a prearranged price, while the latter, futures contracts, obligate the buyer to buy or sell an asset at a specific date in the future. Derivatives trading requires a good grasp of market dynamics as well as the ability to manage risk effectively.

Exchange-Traded Funds (ETFs): ETFs are investment funds traded on stock exchanges, providing day traders with exposure to a diversified portfolio of assets like stocks, bonds and commodities. ETFs can track particular sectors, industries, or market indices, providing data with flexibility and the advantage of diversification.

Which instruments a day trader chooses to trade depends on their personal skillset, level of experience, appetite for risk and the market conditions they’re operating in. While each instrument offers its own distinct rewards, these can also be accompanied by difficulties, so it’s of the utmost important that traders think carefully about which instrument will be best suited to their objectives and strategies.

How to Determine the Best Day Trading Stocks?

Success as a day trader also hinges on choosing appropriate stocks. Bearing the metrics and indicators listed below in mind will help traders make astute decisions.

Price-to-earnings (P/E) ratio: This key metric gives an immediate insight into how the market values a stock relative to its earnings. A low P/E ratio may imply undervaluation, potentially signalling an opportunity. Equally, a high P/E ratio may suggest that the market has high expectations for the stock. Nonetheless, it’s important to weigh this ratio against industry averages and the company’s growth prospects for a comprehensive analysis of the company’s trajectory, as opposed to just its present value.

Price-to-earnings growth (PEG) ratio: The PEG ratio as like an extension of the P/E ratio, offering a forward-looking assessment that incorporates expected earnings growth. A PEG ratio below one indicates potential undervaluation relative to growth prospects. This metric provides insight into future profitability, considering both current earnings and anticipated growth.

Debt-to-EBITDA ratio: Assessing a company’s financial health is similar to determining its resilience against economic turbulence. The debt-to-EBITDA ratio is a valuable measure in this regard, indicating a company’s ability to service its debts with its earnings before accounting for certain expenses. A lower ratio is a positive indicator, suggesting lower financial risk and less financial leverage, essential for stability.

Liquidity: Traders should go for stocks with high liquidity, which benefit from narrower bid-ask spreads, thereby facilitating easier entry and exit from positions and reducing transaction costs. Robust average daily trading volumes ensure sufficient market interest, enhancing trading efficiency.

Volatility: Volatility presents opportunities for price movements within a single trading day, making it essential for traders. You can analyse a stock’s historical volatility by looking at its price fluctuations. Stocks with consistent and moderate volatility are generally preferable for day traders looking for short-term gains.

Sector and industry trends: Day traders also need to look at the wider economic landscape and then concentrate their efforts on sectors and industries that look strong or show positive trends. Day trading stocks within these sectors aligns trades with the prevailing market sentiment, increasing your chances of making profitable trades.

Is Day Trading Good For Beginners?

A career in day trading can be a compelling alternative for many prospective traders. Newcomers to the industry in particular stand to learn a lot, quickly, through day trading. Nevertheless, as day trading is inherently risky, it’s crucial to stay composed while trading and bear in mind the following advice:

Be pragmatic: Day trading holds promise as a career path, but it’s important not to view it as a shortcut to fast wealth, as such expectations rarely materialise. Successful trades can generate profits quickly, but a single misstep or hesitation can lead to substantial losses. As such, it’s prudent to set plausible targets and exit trades promptly once you’ve reached your targets. While flexibility is also good, adhering to this principle to start with can instil confidence and consistency in new traders.

Start with modest capital: Unlike traditional investments, where unfavourable outcomes still allow for exits with minimal losses, a bad trade can be very costly. This means it’s sensible for traders without much experience to begin with only a small amount of capital, which cultivates discipline, minimises losses and encourages traders to make the most of every trade.

Find a mentor: While you could struggle on by yourself, it makes much more sense to seek guidance from more experienced professionals. This will not only help you acquire more skills, faster, but it also enables you to make better use of your resources by sparing you from making costly errors.

Trade with a Prop Firm: Proprietary trading firms, commonly known as prop trading firms, use their own funds to trade on behalf of their clients. Such firms provide individuals looking to elevate their trading careers with access to capital, mentorship and training programs and cutting-edge technology. These advantages, combined with the distinctive prop trading business model, have contributed to the growing popularity of prop firms recently. Visit our top 20 best prop firms and funding programs.

Next Step Funded Review e1712665710942 How to Day Trade for Living: A Beginner’s Guide

4 Tips you need to know before you start day trading for a living

  1. Keep It Simple
    New traders often fall into the trap of overcomplicating their strategies. While it’s essential to factor in relevant information, decision-making in day trading needs to happen quickly, so keep your approach straightforward.
  1. Don’t Quit Your Day Jobs
    Generating profits for a couple of days, weeks, or even months doesn’t mean you have learnt everything there is to know about day trading. It’s not uncommon for traders to experience success during market upswings or downturns, but sustainable success requires consistency and a commitment to continuous learning. You are more likely to progress with this gradual process in an environment of stability and security, so we recommend you hold on to your day job. You can also use the income from this job to invest, as well as keeping a share of it for trading.
  1. Be Realistic About Your Profits
    The concept of beginner’s luck is well-known but isn’t something you should rely on. While new traders may have some early success, this can lead to overconfidence, with traders increasing their bids as they take the profits they generate as a given. A single misstep can serve as a stark reminder of your inexperience, so it’s essential to be realistic about the profits you can make from your trades.
  1. Capitalise on Low-Priced Stocks
    Capitalising on low-priced stocks can be a good move for less experienced traders. This enables you to purchase bigger lots with less money. Additionally, low-priced stocks tend to exhibit higher levels of volatility compared to their more expensive counterparts. It is worth bearing in mind, however, that this higher volatility introduces increased risk, requiring more cautious decision-making.

Day Trading vs Investing

Those thinking of taking up day trading should first consider the alternative option of long-term investment. We compare the two below.

Day trading involves frequent buying and selling of stocks within a single day. The main objective is to generate short-term profits – in other words, a daily income. Profitability requires diligent research, ongoing stock monitoring and decisive trading. Conversely, investing adopts a long-term perspective. Investors (both individuals and institutions) commit to holding a financial asset over an extended period to profit from market growth. Most investors prioritise fundamental analysis of stocks and are less influenced by short-term fluctuations.

The primary advantage of day trading is that it enables traders to derive income directly from the market. Successful day traders have the potential to generate substantial daily earnings every day. Long-term investors, on the other hand, build robust portfolios over time, which can be liquidated for profit as the market grows.

In short, both day trading and investment can offer lucrative opportunities. Choosing which is better suited for you is dependent on your particular trading objectives.

Conclusion

Joining the day trading industry demands a combination of knowledge, discipline, and flexibility. Although it’s possible to generate reasonable profits, it’s important to keep expectations realistic, staying aware of the inherent risks. A well-defined, straightforward strategy, careful risk management and a commitment to continuous education are of paramount importance. As you deal with the ups and downs of the market, bear in mind that succeeding as a day trader is a long-term process, so you should embrace the journey of learning. Resilience is key, so remain patient and you should find that your ever-increasing skills and knowledge lead you to achieving your financial goals.

Frequently Asked Questions About Day Trading

The potential earnings in day trading fluctuate significantly, hinging on various factors including market conditions, trading approach, and risk management strategies. While some more successful day traders generate large profits, it’s imperative to approach day trading with grounded expectations. A trader’s abilities, self-discipline and understanding of market trends also play pivotal roles in determining how much income they make.

The length of a day trader’s career is highly personal. Successful traders who can adapt to an ever-evolving market and consistently refine their approach may enjoy lengthy, lucrative careers, whereas others may find the mental and emotional demands of day trading take a toll that leads them to change careers fairly quickly.

Success rates vary from trader to trader. A substantial percentage of day traders experience losses. Profitability requires a combination of knowledge, discipline, and effective risk management. Although the precise percentage of day traders making money is subject to debate, it’s clear that approaching trading with a clearly defined strategy and a realistic outlook enhances prospects of success.

A number of successful day traders have amassed considerable wealth, including John Paulson, Paul Tudor Jones and George Soros. Nonetheless, it’s crucial to be aware that such instances of day trading success are few and far between, and most traders don’t earn anywhere near as much as these prominent figures.

Prime trading time depends on the market in question. For stocks, the first hour after the market opens and last hour before it closes are generally the most volatile. In the forex market, currency pairs often see increased activity during overlapping market sessions, like the London and New York sessions.

The amount of capital required for day trading is dependent on factors such as the targeted market, trading strategy, and appetite for risk. Certain brokers facilitate day trading with fairly modest initial investments, but you still need enough to satisfy margin requirements and manage potential losses. A number of experts recommend starting with a minimum of $25,000 to adhere to pattern day trading regulations in the US. However, if capital is an issue, there is one way to remediate, sign up with a proprietary firm, pass their evaluation or challenge and trade with their capital. Funded Program can you find the right prop trading firm.

Funded Program eBook Mockup

Free Today: Unlock $25 Value!

This valuable report will guide you step-by-step on how to pass your prop challenge the first time and keep it. Usually priced at $25, absolutely free. Claim yours now!