Day Trading for Profit and Control

Day trading can be a thrilling way to take control of your financial future, but it's not a get-rich-quick scheme.

To succeed, you need to understand the basics of day trading, such as the fact that it involves buying and selling financial instruments within a single trading day.

You can make a profit by selling a stock or security for a higher price than you bought it for, but the key is to do this quickly and efficiently.

Day trading can be a high-risk, high-reward activity, but with the right strategy and mindset, you can achieve your financial goals.

Day trading is a trading strategy where you buy and sell the same security in a margin account on the same day to profit from small price movements.

The main attribute of day trading is that all trading positions are liquidated at the end of a trading day, meaning you're not holding onto any securities overnight.

Day traders don't concern themselves with the long-term value of securities, they're only interested in short-term price movements.

Even if you can accurately predict price movements, gains from price changes can be offset by transaction fees, making day trading a risky strategy.

Day traders may be employees of financial services companies or private individuals, and they use margin accounts to facilitate their trades.

Before 1975, stockbrokerage commissions in the United States were fixed at 1% of the trade, making it difficult for traders to cover their costs.

The U.S. Securities and Exchange Commission (SEC) prohibited fixed commission rates in 1975, causing commission rates to drop significantly.

In the past, financial settlement periods were much longer, with some exchanges allowing stock to be paid for up to 10 working days after it was bought.

You're new to the world of day trading and want to know the basics? Well, let's start with the definition of a pattern day trader. According to FINRA rules, you're considered a pattern day trader if you execute four or more "day trades" within five business days.

A day trade is a trade that's closed before the market closes on the same day. If you're a pattern day trader, your firm will require you to maintain a minimum equity of $25,000 in your margin account.

This required minimum equity must be in your account prior to engaging in any day-trading activities. If your account falls below the $25,000 requirement, you won't be permitted to day trade until it's restored to the minimum equity level.

Day trading can be extremely risky, and the margin requirements provide firms with a cushion to meet any deficiencies in your account resulting from day trading. Firms are free to impose a higher equity requirement than the minimum specified in the rules, and many of them do.

If your firm knows or has a reasonable basis to believe that you'll engage in pattern day trading, they'll designate you as a pattern day trader. This can happen even if you don't day trade for a five-day period, because your firm will have a "reasonable belief" that you're a pattern day trader based on your prior trading activities.

Before 1975, stockbrokerage commissions in the United States were fixed at 1% of the amount of the trade, which meant a $100 commission on a $10,000 stock purchase.

The U.S. Securities and Exchange Commission (SEC) prohibited fixed commission rates in 1975, leading to a significant drop in commission rates.

Financial settlement periods used to be much longer, with stock payments delayed up to 10 working days after purchase.

This allowed traders to buy shares at the beginning of a settlement period and sell them before the end of the period, hoping for a price increase.

The London Stock Exchange used to have a settlement period of over a week, but today it's typically T+2, or two working days.

Day trading can be a thrilling way to make money, but it's essential to understand the risks involved. Most day traders lose money, with a 2019 research paper finding that 97% of individual day traders in the Brazilian equity futures market lost money.

The deck is stacked against day traders, and they often depend on borrowing money or buying stocks on margin. This can lead to huge percentage losses, and the U.S. Securities and Exchange Commission warns that day traders may suffer severe financial losses.

A 2019 research paper analyzed the performance of individual day traders in the Brazilian equity futures market and found that only 0.4% earned more than a bank teller (US$54 per day). The top individual earned only US$310 per day with great risk (a standard deviation of US$2,560).

Day traders need to be prepared to face high levels of stress and expenses. Vinny Yu, co-founder of JAVLIN Invest, emphasizes that preserving capital is paramount in not letting small losses turn into large ones.

Here's a summary of the risks involved in day trading:

If you're considering day trading, it's essential to understand the risks and be prepared to face them head-on.

Day trading requires a sound and rehearsed method to provide a statistical edge on each trade and should not be engaged on a whim.

Some day traders use contrarian investing strategies to trade specifically against irrational behavior from other day traders. This approach is commonly seen in algorithmic trading.

A trader can get an idea of what the market's attitude is toward a particular security by reviewing its price history and trading volume. This is known as technical analysis.

Scalping is a trading style where small price gaps created by the bid–ask spread are exploited by the speculator. It involves establishing and liquidating a position quickly, usually within minutes or even seconds.

Scalpers also use the 'fade' technique, when stock values suddenly rise, they short sell securities that seem overvalued.

Before you consider pattern day trading, take a moment to read the Day-Trading Risk Disclosure Statement. It's a crucial step in understanding the risks involved.

Day trading isn't suitable for those with limited resources or low risk tolerance. You should be prepared to lose all the funds used for day trading.

A brokerage firm's business practices, including order execution systems and procedures, are essential to understand. This knowledge will help you make informed decisions.

Day trading should not be funded with retirement savings, student loans, second mortgages, emergency funds, or assets set aside for education or home ownership. These funds are meant for essential purposes, not speculative trading.

Given the risks, day-trading activities should be approached with caution and a clear understanding of the potential consequences.

Day trading requires a sound and rehearsed method to provide a statistical edge on each trade and should not be engaged on a whim.

A trader's method should be flexible and adjustable to match changing market conditions.

Some day traders use contrarian investing strategies to trade against irrational behavior from other traders.

Short selling stocks is a technique used by some day traders, where they borrow stock from their broker and sell it, hoping to buy it back at a lower price and make a profit.

However, short sales come with technical problems, such as the broker not having shares to lend or restrictions imposed by the U.S. Securities and Exchange Commission.

Technical analysis involves examining a security's price history and trading volume to get a well-informed sense of where it will go next.

Scalping is a trading style where small price gaps created by the bid-ask spread are exploited by the speculator, often within minutes or even seconds.

Scalpers use technical analysis concepts such as over/under-bought, support and resistance zones, and trendlines to enter the market at key points and take quick profits from small moves.

The basic idea of scalping is to exploit the inefficiency of the market when volatility increases and the trading range expands.

A successful scalper must formulate an exit strategy and stick to it, as one big loss could wipe out all gains generated during a trading day.

Scalping trades may only be held for a few minutes or even just a few seconds, and traders may execute hundreds of trades a day.

Momentum is a measure of the strength or acceleration of a security's price trend, and day traders may buy a security expecting a strong move up in price.

Day traders may rely on several strategies to quickly adjust to rapidly changing market conditions, and each trader chooses their own trading strategy based on their risk tolerance and current market conditions.

Market data is the lifeblood of day trading, and getting access to it can be as simple as meeting a minimum monthly volume of trades with your broker. This can essentially make the basic data feed "free".

Real-time market data and news are essential for day trading, and Bloomberg terminals are a popular option among day traders. Day traders often spend significant amounts of money on access to real-time market data.

Some traders also purchase advanced data feeds that include historical data and features such as scanning large numbers of stocks in the live market for unusual activity. This can cost from tens to hundreds of dollars per month to access.

Here are some key tools day traders use to profit from their strategies:

Electronic Communication Networks are electronic systems that match buy and sell orders between institutional and individual market participants.

These networks display the best available bid and ask quotes, helping day traders obtain favorable buy and sell prices.

As a day trader, you'll want to make sure you have the right tools to help you make informed decisions. Access to real-time market data and news is essential, allowing you to stay on top of the latest market trends and make profits. One popular option among day traders is Bloomberg terminals.

Real-time market data is a must-have for day traders, and it's not cheap. However, even a moderately active day trader can expect to meet the minimum monthly volume requirements to get the basic data feed essentially "free".

You'll also want to keep an eye on trading volume, which provides insights into interest in a security. Higher volume usually means increased opportunities for day trading. Trading volume is a measure of how many times a security is bought and sold during a specified trading period.

Candlestick charts are a key tool for technical analysis, providing a clear visual display of the high, low, opening, and closing prices for a specific time period. This is crucial for day traders who rely on technical analysis to make their trades.

Here are some essential tools for day traders:

Commission fees for direct access trading can be as low as 0.5 cents per share or $0.25 per futures contract, with lower costs for higher volumes.

Most brokers in the United States don't charge commissions at all, especially those that receive payment for order flow.

The bid-ask spread is the numerical difference between the bid and ask prices, and it's always present in the market.

If you execute a trade at quoted prices, closing it immediately would always result in a loss due to the bid price being less than the ask price.

Traders who don't want to queue their orders and pay the market price pay the spreads as costs, but those who queue and wait for execution receive the spreads as bonuses.

Some day trading strategies aim to capture the spread as additional profits, or even the only profits, for successful trades.

Trading the news involves buying a stock that has just announced good news or short selling on bad news, taking advantage of the enormous volatility that follows.

The market's reaction may not match the tone of the news itself, as rumors or estimates can already be circulating before the official release, causing prices to move in anticipation.

To gauge whether news is good or bad, you need to look at the price action of the stock, not just the news itself.

Price action trading is a minimalist approach that relies on technical analysis without conventional indicators, using a combination of price movement, chart patterns, volume, and other raw market data.

This approach requires a solid background in understanding how markets work and the core principles within a market, but it's effective in virtually any market.

Traders who follow the news need to continually monitor news outlets to look for information they can use to make predictions about how stocks will fare.

News-Based Trading is all about following the news to make informed decisions about buying and selling stocks. This approach requires traders to stay on top of current events, monitoring news outlets for information that can impact stock prices.

Traders need to continually monitor news outlets to look for conditions that could impact the price of stocks. This can be a challenging task, especially in today's fast-paced news environment.

A news story can change very quickly as media outlets release updates on highly visible situations. This is why traders must stay vigilant and adapt to changing market conditions.

Determining whether news is "good" or "bad" must be determined by the price action of the stock, not just the tone of the news itself. This is because rumors or estimates of the event will already have been circulated before the official release, causing prices to move in anticipation.

Price action trading is a minimalist approach to trading that relies on technical analysis without conventional indicators. It's not easier than other trading methodologies, but it's effective in virtually any market.

Traders who use price action trading rely on a combination of price movement, chart patterns, volume, and other raw market data. This requires a solid background in understanding how markets work and the core principles within a market.

Candlestick charts are a crucial tool for price action traders, providing a clear visual display of the high, low, opening, and closing prices for a specific time period.

Price action trading can be applied to various markets, including stocks, foreign exchange, futures, gold, oil, and more.