Day trading is one of the most misunderstood trading styles.
When you think of day trading, what comes to mind? A lot of people think of crazy traders like in “The Wolf of Wall Street.” Sure, that movie is based on a true story… but it really doesn’t represent the reality of being a day trader.
Day trading is a legitimate career choice… if you approach it intelligently. For me, day trading forex or stocks has proven to be one of the way to the ultimate laptop lifestyle and my gateway to financial freedom.
Ready to explore this niche? I’ve created this guide to help dispel myths you might read on day trading sites and educate you on what it actually involves.
Read on to find out how to get started day trading. You’ll learn what it is, how it works, and how to avoid common mistakes I see people make all the time.
This article will provide you with definitions of day trading, it will explore different day trading systems, how traders make profits with day trading systems, some suggestions for the best Forex day trading systems, and some useful tips for you to use in your daily trading.
What Is Day Trading?
Day trading refers to buying and selling symbols within a single trading day. So, between the time of the market open and close, you open and close your position.
This doesn’t mean that if you ever hold positions overnight you’re no longer a day trader. That does happen. But the strictest definition of a day trader is one who holds positions for a day or less. For this article, I’ll stick with that definition.
But does it mean trading every single day? No it doesn't.
How Does Day Trading Work?
The goal of day trading is similar to just about any other method of trading or investing: to earn a profit. But the way that you actually approach that goal is a little different with day trading.
For instance, if you buy shares of a blue-chip stock, you’re basically committing to a long-term relationship. This is a company you believe in –– or at least you believe their stock will increase in value.
Day trading is a lot more like a one-night stand. You don’t buy a company’s stock or speculate price move in forex pair, because you believe this company has what it takes, or currency of your country will grow… and you don’t intend to stick around for long.
You choose it based on price action. The symbol could be going up for a variety of reasons — big news, a shiny new hike, or a hot new trade deal. You hope to take advantage of short-term price fluctuations.
On the flip side, you might short sell based on negative news that could cause fluctuations.
These movements can be very short-lived, so day trading requires extreme vigilance and carefully planned entry and exit points. These are often determined by looking at a symbols fundamental analysis.
Day Trading Taxes
For day traders, taxes can be more complicated issue. This is important: short-term investments or positions of less than a year are taxed at a different rate than long-term investments (in US as example). In UK you can trade spread betting account without any tax liabilities.
[Note: This is in no way legal or financial advice. Always consult a professional licensed before making tax or legal decisions.]
How to Start Day Trading Forex
What’s necessary to actually execute day trades? That’s pretty easy: you’ll need a brokerage account to execute trades and trading system or software to help you find and track symbols. Often, these two things are combined into one program to work seamlessly.
Best Broker for Day Trading
You need a broker to execute trades, but what broker should you choose?
Choosing a broker is a personal decision. It depends on your opening balance, the features you need, and your location — a number of factors.
I can’t tell you the “best” broker for day trading, because I don’t know your specific circumstances. Every broker has its advantages and disadvantages. These are my favourites- IG, Blueberry Markets and TD Ameritrade (I am not affiliate).
I will say this: DON’T just go for the cheapest broker or the first one you find. Do your research.
This organization will handle your account and your trades –– make sure they execute trades quickly and reliably and don’t have a ton of hidden fees. You don’t want someone shady handling your money.
My advice: do your homework. You should be comfortable with all the tools you use, including your broker. They should be an asset to your trading venture.
How to Select Symbols for Day Trading
There are plenty of currency pairs to choose from… so how do you find the “right” symbol? Don’t worry, it’s not as mysterious as it might seem.
It all starts with establishing and maintaining a watch list. That’s a list of symbols that you’re tracking. A forex screener could be invaluable tool for helping you make and maintain this list. Plus you can use your screener to filter pairs based on criteria that you set.
For instance, maybe you’re looking for big percent gainers or currency with an upcoming central bank announcement. Every trader has specific preferences. A screener can help you filter and focus on what works for you.
Best Day Trading Platform for Beginners
If you ask me, hands down MetaTrader 4 or 5 is the best day trading platform for beginners. It has multiple features that can be fully customised to your preference.
Best Computer and Software for Day Trading Beginners
In terms of software, all you really need is your online brokerage account and a trading software. We already covered those, but what kind of computer should you use?
Once again, totally personal decision. Some traders prefer to trade on a bigger monitor or even multiple monitors.
Since everyone wants to know –– I use a MacBook Pro while travelling; I own a few laptops but do most of my trading from just one. But I always have a backup, just in case. However, in my home I use 3 monitors fully customized Windows PC with standing desk.
How Many Pairs Should I Trade Per Day?
Day trading isn’t a free for all, spread or commission comes with it (check with your broker). So think - day trading is a business and comes with expenses; plan that into your trades...
Focus on making great trading plans and waiting for the right setups — not how many trades you can make per week. Two or three good trades a week is all you need. Yes, it takes time to build an account this way, but it’s time well spent as you learn the smart way to trade.
Day Trading For a Living –– Is It Possible?
Is day trading for a living possible? Short answer: yes. But wait! The longer answer is that you shouldn’t count on it to happen quickly or assume that it will happen at all.
About 90% of traders fail. In my opinion a big part of the reason why is that people want too much too fast. They don’t take the time to learn how the forex market actually works before they start trading. Start with quality education, money comes after that...
What Kind of Fx Pairs Should I Day Trade?
Day trading isn’t limited to a specific price point or fundamentals. However, the method that’s helped me find success –– and what I teach my students –– is day trading forex pairs.
There are many reasons I think forex is perfect for day trading, but here are two of the biggies:
First, symbols are low priced. This makes them accessible to traders who have small accounts, which is most of my students.
Second, they can be volatile. The volatility with means it’s possible to experience huge gains in small periods of time… this makes it possible to grow your account fast.
When To Sell Currency to Be a Successful Day Trader
When should you sell fx pair? Ultimately, you’ve got to learn to make that choice for yourself.
As a day trader, you should ALWAYS make a trading plan. You need to know when to sell the specific currency –– either to take profits or cut your losses. Remember to set reasonable goals. Don’t get greedy.
As for losses… my #1 rule for day trading is that you MUST cut losses quickly. So if a trade doesn’t your way, it’s time to sell. Just get out. Learn the discipline to stick to your plan.
Need help figuring out how to make a trading plan? Check out this post.
Basic Day Trading Strategies
Everyone has a unique trading style. There are a ton of different strategies and approaches to day trading. Here are just a few you should know about.
Note that these styles aren’t all completely independent. For instance, it’s possible to be a trend-following trader who uses ranges or to be a scalper who follows the news and price action.
Trends are everywhere, even the forex market. Trend-following traders try to identify trends ahead of the curve or during dips, then try to ride the momentum.
This means going against the flow, fading the move. For instance, if you believe a forex pair is pumped up, you might attempt to short sell, anticipating that it will go down in value.
With range trading, you rely on support and resistance to set buy and sell points.
Scalping refers to a day trading method where a trader makes frequent trades, hoping to make money through multiple tiny gains. It’s often based on quantity rather than quality, and I don’t suggest this method for new traders.
Playing the news
News moves currency! If you’re playing the news, you’re looking for opportunities based on increased volume and volatility of a pair related to news or press releases.
With this style of trading, you’re looking specifically for a currency price movement. This means looking for technical structure with fundamental conviction and making trading decisions based on price movements with volume.
Artificial Intelligence – Algorithmic Trading
Robo-trading! Also referred to as algorithmic trading, this style of trading relies on algorithms. AI programs can actually execute trades for you based on criteria you set.
What are top Forex trading strategies? Check out this post.
Day Trading Tips for Beginners
The following trading strategies are what I teach all my students. They’re also what I practice.
Tip #1: Don’t Use Leverage All The Time
Leverage lets you borrow from your broker to increase your position size. The idea is that by taking a bigger position, you could make much bigger profits.
Problem? You can really get yourself in the hole this way, too. Leverage is the ruin of most traders, especially newbies. You don’t need to use leverage. Don’t do it before you understand how to do it the right way.
If you lose, pretty soon you’ll get the dreaded call from the broker asking you to deposit more money to cover your losses - margin call.
If you can’t cover your losses, it could be game over. Not worth it.
Tip #2: Follow Chart Patterns
When you start to really look at the forex price action, you’ll see that they move in patterns. These patterns can create opportunities for traders.
How? Well, over time, patterns repeat. If you really study, you can learn patterns, understand how to recognize them, and know when it’s time to pounce. At first, you should learn a few patterns and get good at spotting them.
Tip #3: Create Your Own Forex Portfolio
“Forex portfolio” sounds awfully serious, but don’t get intimidated. This just refers to the different symbols that you trade and the positions you hold.
With any type of portfolio, it’s important to make your own decisions about the securities you choose. Yes, it’s fine to get information from a number of sources. But ultimately you’re the one responsible for the trade, so do your research.
Additionally, be sure to curate a diverse portfolio. Things change quickly in the forex market, so you never want to put all your eggs in one basket. If you only trade within a certain pair or at an exact price point, you could get burned.
Even with trading forex only, there’s a huge variety of symbols to choose from.
Tip #4: Trade Volatile Pairs
Volatility isn’t a trait you might look for in a romantic partner or best friend. But in terms of trading, volatility is your best friend.
Volatility is a measure of a price movement over time. When you study charts, you’re looking for price movement patterns. High volatility is what you see when there’s a lot of up and down. If there’s no movement, you can’t make a profit.
Day trading for a living means embracing volatility. Volatility is also good for the overall market, even for buy-and-hold investors. At some point, most investors want to sell their exposure, right? Without volatility and trading volume, it’s difficult to sell.
Tip #5: Use Physical Stops
Physical stops are one of my personal day trading secrets. Hard STOPS (market) is the bullet proof vest when u trade. Put it on! Don’t be an idiot. It doesn’t mean it won’t hurt but it will protect you from blowing up and dying!
Know your risk before you trade. Plan your trade & trade your plan! Know where u will enter, exit & STOP out.
Tip #6: Never Stop Learning
When you think you know it all, your trading career is doomed.
The market has an uncanny way of knowing when you’re cocky. It can humble you all too fast. All it takes is a little change.
You must learn to adapt as a trader, and that means that you can never stop learning. There’s value in every experience. My biggest losses have been some of my biggest teachers… so have some of my biggest wins.
But how can you actually learn from them? Keep a trading journal.
This is a log where you note things like your entry and exit points, what you did right, what you did wrong, and how you could do it differently. Over time, as you flip back through your entries, you might notice patterns that can help inform future trades. It can help you reduce mistakes and streamline what’s working.
Tip #7: Set Aside Funds
Never trade more than you can afford to lose.
Don’t take the risk. Whenever you profit, save some of those proceeds. Don’t just reinvest everything.
Tip #8: Start Small
Scale up over time. Instead of going all-in every time, start with small amounts. You got to learn what works and what doesn’t in a trade.
Then, and only then, should you start scaling up the amount of money you risk.
Remember: even if you don’t make tons of real money in your brokerage account, your education account is growing. Knowledge will serve you most as a trader.
Tip #9: Manage Your Risk
Cut losses quickly!
This is one of the most important and simplest lessons I can teach you. It’s also one of the biggest lessons that new traders ignore.
Day trading comes with risks. FX market come with risks. But you don’t have to love risk to day trade currency pairs. In fact, I’d prefer you didn’t love risk. I don’t, and I think it’s one of my keys to staying in the game this long.
As a trader, I want to do everything I possibly can to reduce my risk: setting specific goals, having a plan, doing the research, and being disciplined about my stops.
If the price action reaches where I said I’d take profits, I do. The price might go higher –– that’s OK. I’m fine with a smaller win if I stay safe.
But managing risk also means cutting losses quickly. If a trade doesn’t go your way, don’t wait around. Cut your losses, learn from the experience, and move on.
I believe that a key to successful trading is learning how to become comfortable with taking a loss. Check out this post.
Day Trading Rules
Discipline is SO important for day trading. I have rules that I follow as a day trader… and usually, when I mess up it’s because I broke my own rules.
Don’t think that you can jump ahead of the line. Be diligent, work hard, and follow the rules.
In this article I'll try to debunk myth behind how professional Forex traders trade, and explore most effective forex trading strategy. Check out this post.
Conclusion: Is Forex Day Trading For You?
The first step to becoming a day trader? Getting quality educated on what day trading actually is and how it works. You’ve taken that step here… does it interest you?
And yeah, it’s easy to get started as a day trader, but that doesn’t mean it’s easy to be a day trader. It requires meticulous planning, loads of research, and plenty of time studying charts and news.
Sound like a challenge that you’re up for? If not, move on. These things are non-negotiable.
But if you’re up to the challenge and willing to put in the work, day trading could be a good fit for you. In that case, your next step is to begin investing in your education. Knowledge is power when it comes to day trading!
There are plenty of resources on my site. I look forward to helping you grow and work toward your goals.
Day trading powers won’t come overnight. It requires dedication, hard work, and plenty of studying. It takes time to begin to understand how the market works and how to decipher and use its movements to your advantage.
Thing is, if you’re willing to take the time to establish a strong foundation, you’ll be a stronger, smarter trader in the long run.
Are you ready to start day trading or have you already started? What’s your story? Leave a comment below!