These tips could be helpful to day traders of all types, both experienced and new to the market.
Perform a personal audit.
If you want to pursue day trading, you need to understand the challenges. You’re going to have days when you lose money. It’s going to take a lot of time to understand what you’re doing. Even once you understand different strategies and all the terminology, you still might not find success. Day trading is hard, and there’s no guarantee you will make any money at all.
That being said, there are day trading success stories. If you understand a marketplace and develop effective trading strategies, it’s possible to be a successful day trader.
“Having trained multiple clients who’ve gone from cubicles with small trading accounts between $10,000 to $37,000 to successful, full-time day traders, making millions in just a few years, I have verified proof people can make the leap from their career to trading full time,” said Jason Bond, co-founder of Raging Bull, a trading, coaching, and mentoring service.
Research the market, strategies, and potential platforms.
Whether you’re going to use the forex market, the stock market, or any other marketplace, you need to understand how that market works before becoming a day trader. There’s an idea that being a day trader can make you rich quickly and allow you to spend most of your time relaxing, but that couldn’t be further from the truth. Succeeding as a day trader takes significant research and effort.
Researching the market and eventually developing strategies also requires learning from successful day traders.
“The best way to become a day trader is to learn from existing profitable day traders,” Bond said. “There’s an overwhelming amount of theoretical material on the internet about how to day trade, but nothing beats learning from someone who is currently successful at it.”
Your research should also include finding additional detail on trading strategies within that market and regulations surrounding day trading. FINRA’s website is a good place to answer detailed regulation questions regarding day trading.
Once you’ve completed sufficient research, it’s important to start small as Rothfeld suggested. It takes time to learn how to day trade, and putting a lot of money on the table to start is a big risk. The risk associated with day trading also means you should use money that you’re comfortable losing.
“Day traders typically suffer severe financial losses in their first months of trading, and many never graduate to profit-making status,” the SEC’s website says. “Given these outcomes, it’s clear: Day traders should only risk money they can afford to lose. They should never use money they need for daily living expenses [or] retirement, take out a second mortgage, or use their student loan money for day trading.”
Since losing money is part of the learning process for many day traders, it’s a good idea to start slowly and learn as you go. It’s also important to stick to whatever trading strategy you’re implementing. One of the biggest mistakes day traders make is creating a well-thought-out strategy only to completely go against it in a rushed trade.
“Quite often, day traders will take trades because they are just sitting in front of their screen all day,” Rothfeld said. “A forced trade is generally going to be a losing trade. Always follow your rules.”
Understand the risks and challenges of becoming a day trader.
Day trading isn’t easy, and there are several areas of complexity that require research for new day traders. If you decide to become a day trader, it’s important to understand that day trading isn’t a get-rich-quick scheme. You will lose money along the way, and not all your trading strategies will pay off as you expect.
To become a successful day trader, you need to be willing to put in months and years of hard work to understand the markets, develop a strategy and execute your plan consistently over time.