Day Trading, An Introduction



In the past, only people employed by large financial institutions, investment companies, and trading houses were allowed to trade on the stock market. 

However, over the past 25 years, the playing field has leveled because of developments such as the introduction of low-cost brokers and Internet trading, as well as the rapid global dissemination of news and the low commissions associated with trading.

In addition, the rising popularity of trading platforms and zero-cost trading has made it easier for investors to try their hand at trading like the pros.

You can find a rewarding profession in day trading (if you do it right). However, the process can be challenging for beginners, especially if they do not have a well-planned strategy. Even experienced day traders run into problems or even lose money. Here we will look at day trading and help you understand it thoroughly.

Basics of Day Trading

Day trading is the practice of reselling a stock during a single trading day. The foreign exchange and stock markets are the most traded markets of all. There is a large percentage of day traders who are well educated and well funded. Typically, they use short-term trading strategies to profit from small price changes in highly liquid stocks or currencies.

Day traders understand short-term market changes very well. It is not uncommon for traders to place trades based on breaking news. Market psychology and expectations influence scheduled announcements such as economic data and interest rates. 

Markets react quickly and dramatically when expectations are not met or are exceeded, which can be beneficial for day traders. Day traders employ numerous intraday strategies, including:

  • Scalping: With the scalping strategy, it is possible to make numerous small profits with minimal price changes during the day.
  • Range Trading: This strategy primarily uses support or resistance levels to determine when to buy or sell.
  • News-based trading: Traders use news-based strategies to take advantage of increased volatility during news events.
  • High-frequency trading (HFT): High-frequency traders use algorithms to exploit short-term or small market inefficiencies.

How to Start Day Trading

Once you have learned a strategy that seems profitable in a simulator, you can think about trading with a live account.

To do this, you need to take the following steps:

  • Transfer money to a brokerage account.
  • Create a trading plan that you can review every morning.
  • Prepare your watch list in the morning.
  • Stick to your trading plan.
  • Review your trades in the evening.

Starting slow is one of the most important pieces of advice we can give to aspiring traders with a real account. Do not rush in with both feet and trade for maximum size. Instead, take it slow until you feel more comfortable.

Trading with a real account brings more emotion and pressure, but that will lessen as you gain experience.

After all, you don’t want to blow your account on the first day and lose all your money!

Bottom Line

Day trading is an excellent way to make money, even though it is challenging. The efficiency and liquidity of the market largely depend on day traders, both institutional and individual. Although day trading remains popular among beginners, it should be reserved for those with the necessary skills and resources.