A Short Guide to Day Trading

Day trading entails buying or selling stocks, ETFs and other financial instruments within a single trading session and closing a position before the trading day’s end. In the past, day trading was the domain of experts at investment firms and banks. However, with the prevalence of electronic trading, anyone can be a day trader.

A Few Words of Caution

While day traders can certainly make a profit, the job is stressful, time-consuming and risky. Most non-professional traders aren’t successful in the long term, because day trading success requires discipline, dedication and stringent asset management.

A Variety of Methods

Today’s day traders use a range of strategies. While some are new, most are just abbreviated versions of conventional trading techniques such as range trading, trend following and reversals. Trading tech has evolved to where some traders may execute hundreds of trades in a single day in attempts to capture small profits in large numbers.

Breakout Trading

For day traders, breakouts occur when an ETF or stock has risen above a price resistance area such as a downtrend line or consolidation point. When a breakout happens on the downside, an instrument falls beneath an uptrend line or consolidation point.

Pullback Trading

Pullback entries are based on the idea of finding an ETF or stock with an established trend and waiting for a pullback down to its moving average or uptrend line. A day trader may identify an ETF or stock that’s shown strength in the past few trading sessions. They wait until the market retreats to a certain support level before jumping in.

The Risks of Being a Day Trader

Many traders work on margins provided by brokerage firms. A margin is a type of loan that’s provided at the broker’s discretion; brokers require a day trader to have at least $25,000 in their account at all times. If the account balance goes below that amount, the trader has five days to bring it up. When an investor fails in that regard, they must trade with the cash they have on hand for 90 days, and they are usually blocked from day trading.

Day trading can be difficult, and new traders are forced to compete against the pros. To level the playing field, do some research, find the right method and be prepared for market fluctuations. Visit Markus Heitkoetter on LinkedIn for more day trading information.