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In this article, I explain the fundamentals of day trading and how day trading is different from other styles of trading and investing. In the process, I also describe important trading strategies that many traders use each day. This article is deliberately short so readers will actually finish reading it and not get bored halfway through and put it to one side. We are all distracted by Internet diversions, emails, Facebook and Instagram notifications, and the dozens of other apps that we have on our smartphones and tablets. Therefore, this article is concise and it is practical.

If you are a beginner trader, this article will equip you with an understanding of where to start, how to start, what to expect from day trading, and how you can develop your own strategy. Simply reading this article will not make you a profitable trader. Profits in trading do not come from reading one or two posts, but, as I will explain later, profits can come with practice, the right tools and software, and proper ongoing education.

I have included at the back of this latest edition of my article a handy and helpful glossary of the most common terms you will come across in day trading. If, as you are reading this post, you come across a term or phrase that you don’t recall the meaning of, please go and have a look at its definition in the glossary. I’ve used easy to understand language to explain the “lingo” of day traders.

Intermediate traders may benefit from this article’s overview of some of the classic strategies that the majority of retail traders use effectively. If you don’t consider yourself a novice trader, then you may wish to jump ahead and start reading at Chapter 7 for an overview of these important day trading strategies. However, I encourage you to skim through the earlier chapters as well. Becoming a consistently profitable trader will not require you to master complicated new trading strategies every day.

The strategies described in Chapter 7 are ones that traders have been successfully using for more than a decade now. They have worked so far and need to be mastered. Work on simple, well-known strategies, but adjust them over time to complement your own personality and whatever the current market conditions are. Success in trading is not a revolution, it is an evolution.

In my opinion, the most important lesson that you can learn from reading this post is that you will not get rich quickly by day trading. Day trading is not similar to gambling or playing the lottery. This is the most important misconception that people have about day trading and I hope you will come to the same conclusion after reading this post. Day trading looks deceptively easy. Brokers do not normally release customer statistics to the public but, in Massachusetts, a state court did order the release of the records of financial brokers. Those records indicated that after six months of trading, only 16% of day traders actually made money. It is very easy to be one of those 84% of traders who are losing money.

This brings you to my first rule of day trading:

Rule 1: Day trading is not a strategy to get rich quickly. A very common misconception that people have about day trading is that it is easy: “buy low, sell high” or “buy the dip, sell the rally”. Again, day trading looks deceptively easy, but it is not.

If it were that simple, everyone would be a successful trader. You must always remember that day trading is difficult and will not make you rich quickly. If you have this misconception, and if you want to get rich quickly and easily in the stock market, you should stop reading this post right now and spend the savings that you put aside for day trading on a nice family vacation. It would be much more satisfying to spend your money that way, rather than losing it in the stock market.

Having mentioned all of these points, day trading can be a profitable profession. But keep in mind that it’s a highly demanding professional career and most definitely not a casual activity for beginners. It takes time to become a consistently profitable trader. Many traders will fail in the long and at times fatal day trading learning curve.

This article focuses on the real actionable steps you must take to successfully enter the world of day trading but, again, beware that day trading demands a brutal learning curve. Although there are many things that you can do to speed up your learning curve, you unfortunately cannot make the learning curve disappear. Trading in a simulator account is expediting your learning curve exponentially. One day of trading in a simulator can be worth weeks of training in real accounts or offline.

Often I am asked how long it takes to start making money as a trader. You may have heard it can take a year. Some professional traders may say it is not possible to make money for two years. I have found that most of the better traders in our community consistently make money before the end of their sixth month. But for others it can take a year. On average, it usually takes from six to eight months. It always amuses me to see books and online educational courses that advertise teaching a simple strategy to make you money from “day one” or after a week or even after just one month. I am always intrigued to meet people who actually believe that advertising and are willing to pay for those products. Placing buying and selling orders in front of a screen, where all of the images and variables are moving exceptionally quickly, demands the highest levels of concentration and discipline. But, unfortunately, day trading attracts some of the most impulsive and gambling prone people out there.

In day trading, you will be competing with the sharpest minds in the world. You have to consider the market as a massive crowd of traders, situated all around the world, some experienced and some novice, some working from their homes and some working for large firms, all wanting to keep their money, and all wanting to help themselves to your money. This leads to my second rule of day trading:

Rule 2: Day trading is not easy. It is a serious business, and you should treat it as such.

Day trading is not a hobby. It’s not a weekend pursuit. You need to study and prepare to enter the world of day trading as seriously as a student would study while in university or trade school. And, once you begin trading with your real money, you need to treat it as your career. You need to get up early, get dressed, and be seated in front of your trading station, just as if you were getting ready to go to any other job. You can’t be casual about it. You can be successful, but in order to succeed, you have to be better prepared than many of the other traders who you are competing against. A significant part of achieving that success is to learn how to control your emotions. You need to enter each trade with a well-thought-out plan and then stick to it. As I am fond of saying, you need to stick to your trading plans like glue! You cannot allow your emotions to get the better of you in the midst of a trade.

You cannot be an emotional person when trading. You have to be “calm, cool and collected” as the saying goes. You have to somehow find a way to control your emotions. I personally believe you must start developing the discipline of a winner, and I’ll expand upon that thought more in Chapter 8 when I share with you a lunchtime walk I took along Wall Street in New York City back in 2014.

So, then, what is day trading? In reality, day trading is a profession, very much like medicine, law and engineering. Day trading requires the right tools and software, education, patience and practice. In order to learn how to trade with real money, you will have to dedicate countless hours to reading about trading styles, observing experienced traders, and practicing in simulator accounts. An average successful day trader can make between $500 and $1,000 every day. That’s equal to $10,000 to $20,000 a month (based on about twenty trading days in a month), and that equals some $120,000 to $240,000 a year. Why would anyone expect a job that pays this well to be easy? Doctors, lawyers, engineers and many other professionals go through years of school, practice, hard work and examinations to earn a similar income. Why should day trading be any different?

And therefore, if it isn’t easy, and it doesn’t make you rich quickly, why would you ever want to day trade?

What makes day trading attractive is the lifestyle. You can work from home, work only for a few hours each day and take days off whenever you wish to. You can spend as much time as you want with your family and friends without requesting vacation time from a boss or manager. You are the boss. Since day trading is a form of self-employment, you are the CEO and you make the executive decisions for your business.

The lifestyle is extremely attractive and, of course, if you master the profession of day trading, you can potentially make thousands of dollars every day, far more than in most other professions. I personally know some traders who average over $2,000 every day. Some days are lower and some days are higher, but over the long term they have a profit of over $2,000 every day. No matter where you live and how you live, $2,000 a day is a substantial amount of money and can contribute to a very satisfying lifestyle. If you learn how to day trade properly, your reward is the trading skills to trade profitably in any market, from anywhere, and for the rest of your trading career. Essentially, it is a license to print money. But it takes time and experience to develop skills for this new career.

If you want to own your own business, day trading is a simple place to start. Take a moment and compare day trading with opening a pizza shop or a restaurant. If you want to open a restaurant, you’ll have to spend large amounts of money on rent, equipment, staff hiring and training, insurance and licenses - and you still won’t be guaranteed to earn money from your restaurant. Many businesses are like that.

Day trading, on the other hand, is very easy to set up and start. You can open a trading account today, at no cost, and then start trading tomorrow. Of course you should not do that until you educate yourself, but the logistics of commencing day trading are extremely easy compared to many other businesses and professions. Day trading is also an easy business to manage the cash flow of. You can buy a stock, and, if things go badly, you can immediately sell it for a loss. Compare that to people who have import-export businesses and are importing goods from other countries. There are plenty of things that can go wrong when purchasing shipments of goods to sell in your own country - problems with vendors, transport, customs, distribution, marketing, quality and customer satisfaction - plus, your money is locked in for the entire process. Unless everything goes well, you can’t do anything about it. At times you cannot even accept a small loss and easily step away from your business. With day trading, if things go wrong, you can come out of the trade in a few seconds with an action as quick and simple as a click (and, of course, a small loss). It is easy to start over in day trading and that is a highly desirable aspect of any business.

Closing a day trading business is also easy. If you think day trading is not for you, or if you don’t make money from it, you can immediately stop trading, close your accounts and withdraw your money. Aside from the time and money that you have already spent, there are no other costs or penalties. Closing other professional offices or businesses are not nearly as straightforward. You cannot as easily close your store, office or restaurant, lay off your staff and walk away from your lease and equipment.

Why then do most people fail in day trading?

I will explain specific reasons behind this important question in Chapters 8 and 9 but, overall, in my opinion, the most common reason that people fail in day trading is that they do not regard it as a serious business. They instead treat it as a form of gambling that will quickly and easily make them rich.

Others decide to become involved in trading because they think it will be fun or entertaining, or an interesting hobby of some kind. They might be attracted to trading because they consider it a “cool” thing to do, something that will bring them prestige or perhaps make them more attractive to others.

Losing amateurs trade for the thrill of short-term gambling in the markets. They play around a little bit in the market but never commit themselves to acquiring a proper education or an in-depth awareness of day trading. They may get lucky a few times and make some money, but eventually the market will punish them.

This is actually my own story. At the beginning of my trading career, a company called Aquinox Pharmaceuticals Inc. (ticker: AQXP) announced some positive results for one of its drugs, and its stock jumped from $1 to over $55 in just two days. I was a beginner at the time. I purchased 1,000 shares at $4 and sold them at over $10. I was thrilled. What looked like a very good thing however, turned out to be very bad. I had made over $6,000 in a matter of minutes. And on my first day of trading with real money! I was left with the impression that making money in the market was easy. It took me time and several severe losses to get rid of that very mistaken notion.

It was pure luck. I honestly had no idea what I was doing. In just a few weeks I lost that entire $6,000 by making mistakes in other trades. I was lucky because my first stupid trade was my lucky one. For many people, their first mistake is their last trade because they blow up their account and have to desperately close, leave and say good-bye to day trading.

New day traders should never lose sight of the fact that they are competing with professional traders on Wall Street and other experienced traders around the world who are very serious, highly equipped with advanced education and tools, and most importantly, committed to making money.

Never forget Rule 2: day trading is a business, and it’s an intensely serious one. You have to wake up early in the morning, do your preparations every day on the stocks that you plan to trade, and be thoroughly prepared before the market opens. Imagine for a moment that you have opened a restaurant. Can you afford not to be ready for your customers when you open your doors? You can’t close the restaurant at lunchtime because you aren’t feeling well or you’re not in the mood or you didn’t have time to order enough groceries for the kitchen staff to prepare meals with. You must always be ready. The day trading business is no different.

Day trading requires proper tools, software and education. As with any business, you must have the right tools to succeed. So what are the basic tools you need for your day trading business?

  1. Business Plan: like any other business, you need to have a solid business plan for your day trading including what strategies you will use and how much you will invest in your education, a computer and screens, scanner software, platforms, and other tools. I always advise individuals to budget at least $1,500 for education for their first year. Yes, $1,500 might be a lot of money for one week or one month of training, but over the course of your lifetime it is a very manageable investment, even for people who are not financially blessed but are ready to begin trading. 
  2. Education: it always amazes me when I see people start a new business without proper education and training. Day trading is a business that requires a serious education and consistent practice. Would you start surgery just by reading a post or two? Would you be able to practice law or engineering just by reading one post or by watching a few YouTube videos? No. A day trading career is no different. Seek a solid education and practice for at least three months in simulators before trading with real money. Many people think that trading can be reduced to a few rules that they can follow every morning: always do this and always do that. In reality, trading isn't about “always” at all; it is about each situation that presents itself and it is about each individual trade. 
  3. Startup capital (cash): like any other business, you need some money to start your trading business, including money for buying a good computer and three monitors, plus sufficient capital to actually begin trading with. Many businesses, including day trading businesses, fail because the entrepreneur founders lack adequate startup capital and cannot keep tight control of their overhead costs. It will take time before you will make a living out of day trading. You need sufficient startup cash to sustain break-even operations at the beginning. Often new traders will cut back on the essentials, such as paying for the right education, tools and platform, in order to preserve their capital. They are trying to do too much with too little. This creates a death spiral of distress and emotional trading. Adequate startup capital enables new traders to make beginner’s mistakes and address their weaknesses early in their day trading career and before they are forced out of the trading business. The amount of capital you have available for trading is also an important component of your daily goals, especially if you desire to make a living from trading. When traders are undercapitalized but still hope to trade for a living, they are more likely to take higher risks to achieve their desired returns. That, unfortunately, will most likely destroy their account. 
  4. Right tools and services: 

  • High-speed Internet service. 
  • The best available broker. 
  • A fast order execution platform that supports Hotkeys. 
  • A scanner for finding the right stocks to trade. 
  • Support from a community of traders. 

Some of these tools must be paid for every month. Just as other businesses have monthly bills for electricity, software, licenses and leases, you have to be able to pay your Internet provider’s monthly bills, your broker’s commissions, scanner costs and trading platform fees. If you are part of a paid chatroom or community, you can add the cost of that membership to this list too.


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