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Originally Posted On: How To Start Day Trading Guide – StockAbility
A Comprehensive Guide For Beginning Investors
The stock market has been in the midst of a very strong recovery ever since the economic shutdown crash at the beginning of March 2020. This has led to significant opportunities for all sorts of investors, and the influx of new day traders have broken every new investor record available. Everyone seems to know someone who has been doing great in the market this year, but how do you actually go about starting yourself? We’re going to outline how to start day trading, the risks, rewards, and different strategies to implement as you proceed.
While there may be many free resources like this guide offered at brokerages, we highly recommend investing in an educational program that will help you build and grow a successful portfolio.
Day Trading For Beginners
As you consider beginning day trading, the first thing you should ask yourself is, “What are my goals?” These can be monetary goals, a percentage basis, or simply learning the technical side of training.
It is extremely important that you also figure out your risk profile and what an appropriate amount of money to trade is. Day trading basics are best learned through experience, but that experience can be costly if you are too aggressive to begin with. Additionally, consider if you want to trade for fun or for consistent long-term profit. The idea of day trading can be alluring, but it is hard to be profitable and create a true income stream without dedicating yourself to a true stock market education.
From there, you need to select a brokerage if you don’t have one. Many popular ones include Vanguard, TD Ameritrade, Charles Schwab, or Webull. Many of these brokers have introductory courses built in to their customer service should you want some additional learning material.
**Pro Tip Pop Quote** While many brokers offer free education, it is with the hope that you increase your activity as they typically make commissions off of your trading activity.
Once you have your account set up and have learned some day trading tips and basics, you can either jump into your first trade, or even practice with something called paper trading. This is where you are allowed to make moves in an account that does not hold real money, but tracks your picks. It is a great way to test theories, learn mechanics, and get an intro to day trading.
Regardless, starting small with a single trade is highly recommended so that you can focus on each individual mechanic of day trading strategies.
Day Trading Basics
Before getting into a holistic outlook of day trading, you need to understand the most common actions used inside a brokerage.
The most common and basic action for a stock is just to buy or sell it. However, even within this action, you have to choose what stock you’re purchasing or selling, how many shares of it, and at what price. Even within this first portion, there are a couple of things you must appraise to figure out how much a stock costs and how you will go about buying or selling.
You should be watching the price action of a stock when considering your possible options. Has it been consistently rising or falling? Is it moving in one direction at a rapid pace? Why are these movements happening? There can be very basic explanations, or you might have to do a little research.
There is also something called a bid and ask for each individual stock. These represent what the highest bidder is offering, and what the lowest seller is willing to part with their shares for. These create what is called a ‘spread’, and it will help you dictate what to buy or sell a stock for.
When you are buying or selling, you can choose your price — this is called a limit buy. Alternatively, if you are looking to execute a trade quickly without being extremely discerning about a small difference in price, you can execute what is called a market buy or sell. This means whatever the current bid or ask is will be what you get — even if it changes during the milliseconds your transaction is being processed (which happens given the advanced speed of the market).
We highly recommend only executing limit purchases or sales as you begin — they are less volatile, and it will make you truly think about what you are willing to lay on the line for your shares.
There are many other terms to know once you have bought and sold a few stocks, such as:
There are hundreds of other terms as well, as mastering the stock market is a nearly endless endeavor. For the short term, we recommend focusing on what you want to buy or sell, and doing it at a calm pace.
Day Trader Characteristics
We brought up assessing your risk profile, as it will help define what kind of day trader you are. You can try to be an aggressive bull, chasing big run ups in a single day. You can also be a bear, learning to short individual stocks as they decline. These are two key terms to remember: bullish refers to the positive side of stock price action, while bearish refers to a declining position.
Additionally, you don’t only have to trade within one day just because you are ‘day trading’. While intraday trades are most common under this classification, you can also take swing positions. This means you are buying a stock with the intent of holding it for a few days to a couple of weeks. Usually, trades like these are based around catalysts or stocks that have taken losses but are expected to recover.
Between day trading, swing trading, and the choice of what sectors you want to invest in, there are many ways to invest. You may not realize what style suits you until you’ve tried a few, but we recommend keeping an open mind. The goal is to develop a suite of skills and plans that afford you the opportunity for financial freedom via trading as your source of income.
Day Trading Software
Outside of the brokerage, you will need to trade stocks, there are a multitude of tools to help day traders succeed. There are programs such as Think or Swim (which is either subscription-based or free for TD Ameritrade customers) that will help you with chart patterns, technical analysis, and scanning.
Additionally, there are complex programs designed to assess your trading profile and help you create short and long-term prospects for a trade. Alongside Think or Swim, we recommend looking into MetaTrader or Optuma. Each software will have a built- in trade deck, allow you to see real-time data for exchanges, and develop case studies of your trades. Ultimately, we advise that you acclimate yourself to the trading platforms and day trading strategies before getting into advanced software.
Once you understand the basics, however, software can go from a crutch to being a wonderful tool to make your trading faster, more precise, and more profitable. A great introduction to strategic software is a site called Tradingview. Its free resources will let you see some of the tools and data included in subscription services. From there, purchasing Think or Swim and coupling it with trading courses would be our recommendation.
There is a distinct difference between wealth management and day trading. A popular adage is that most day traders will not beat the strategy of just investing consistently into the S and P 500 and letting your funds grow. This may be true, but it’s also not why you’re learning about day trading. You’re here to acquire the proper knowledge base and skills to have a chance at multiple pathways to success.
Wealth management, however, would fall into the buy-and-hold category more often than not. Many day traders leverage their short term profits into doing this in order to mitigate their overall risk and keep a diversified portfolio.
We believe this is a good strategy — while day trading can be lucrative and great in the short term, you don’t want to overleverage yourself within it. Keeping some consistent growth stocks, ETFs, or other safe bets in a long-term fund is always a good idea.
How To Start Day Trading
So, to sum it all up…
- Establish your goals and risk tolerance for stock trading. Do you want to be a day trader, swing trader, long-term investor, or all of the above?
- Set aside funds to start trading with- but only money you are comfortable risking.
- Learn what styles of trading suit you best, get better at them, and expand your horizons. Practice makes perfect!
- Make sure that you trade your plan, and when you deviate, study why. It doesn’t have to be a bad thing, but you should always break down your trades. Trading is one of the greatest venues for life-long learning, and the courses at StockAbility are tools that can amplify your knowledge quickly. With the proper approach, you can turn day trading into your full-time job!
- Keep a healthy lifestyle physically and mentally- you’re trusting your body and mind to be working well at all times while you trade. There’s nothing wrong with taking a break, getting your mind and body back in the zone, and getting back after it!
Day Trading Courses At StockAbility
If all these introductory phrases and ideas seem a little overwhelming, we understand. The stock market is an extremely nuanced and competitive arena. StockAbility has been helping traders begin their journey into trading and investing for decades with a track record that is unmatched.
Our goal is to teach people the skills needed to trade and invest their way to financial freedom, a healthy retirement, or generational wealth. Our courses will teach you how to invest confidently and learn the mechanics of day trading quickly.
If you think you have what it takes to grab hold of your financial future, please look into one of our programs today — we’re bullish on your success.