Want to make more money with less work? Then you might want to know how to start day trading.
Day trading has been a way to make money since 1867. Back then, the telegraph was used to create ticker tape, which could quickly send out information about transactions with brokers happening on the exchange floor. This allowed brokers to see what was happening throughout the day and use that information to start day trading.
Needless to say, day trading has come a long way since then – especially since computers and the internet were invented. Thanks to modern technology, anyone can become a day trader, and work from anywhere that has an internet connection.
Wondering what it takes to get started? This guide has everything you need – keep reading to learn how to start day trading!
What is Day Trading?
First, the basics. You’ve heard of day trading – but what exactly does it mean?
The purest form of day trading involves buying and selling investments and stocks, ending the day with no open positions, just cash. Positions held for a night or more are called swing trades. However, most day traders actually use both day and swing trading.
What Do You Need to Start Day Trading?
As with many jobs, there’s a bit of equipment needed to get started with day trading. Here are the things you should have before you move on to the next steps.
1. Laptop or Computer
Ideally, you’ll have at least two monitors, and up to six to work with. However, this isn’t strictly necessary – but the computer or laptop is.
Make sure the computer has a fast processor and enough memory to run your trading program without crashing or lagging. It doesn’t need to be a start-of-the-art computer, but the cheapest models won’t cut it, either.
Keep in mind that computer technology and software changes regularly, so you’ll need an up-to-date machine that can keep up. A slow computer can cost you a lot as a day trader, especially one that crashes during trades or is so slow that you miss trades.
2. Internet Connection
The internet connection needs to be reliable and fast for day trading. Try a mid-range internet package to start with, and make adjustments as needed. If the internet keeps doing down, it will cause problems for your profits. Avoid sporadic connections if you want to succeed in day trading.
3. Trading Platform
Next, you’ll need the right trading platform for your day trading market and style. You’re probably not going to find the best platform on the first try. Instead, download a number of them and give them a try.
When you’re a beginner, you don’t know exactly what your trading style is going to be, anyway. It’s okay to start with one trading platform and then change as you hone your style of trading. In fact, you can change platforms a few times throughout your day trading career.
You can also keep the same platform but adjust the setup to meet your needs.
Finally, a broker is the person who facilitates trades for you. You’ll pay them a fee or commission based on the trades you make.
Work on finding a broker with low fees. Paying high commissions can quickly eat into your profits. However, the broker with the lowest fees may not be the best. You want someone reliable who can support you if you have an issue. It’s worthwhile to pay a little more for this reliability since it can save you a lot of money if a problem arises.
Although major banks offer brokers, their fees tend to be highest. Look for small brokers who allow your to work with them and customize your commission structure.
How to Start Day Trading: A Step by Step Guide
You’ve got the materials needed, and you’re ready to get started. Here are the steps to follow if you want to dive into day trading.
1. Be Honest With Yourself
First, assess yourself and make sure you’re prepared for what you’re getting into. If you want to be a successful day trader, you need specific knowledge and skills – but you also have to be willing to commit to the lifestyle.
Do you have lots of financial knowledge and great math skills? These things are important. You’ll also need some behavioral psychology chops to read what the best next steps are. And don’t forget that you’re becoming an entrepreneur – you need to be committed to building a successful business as a day trader.
Day trading is flexible and can be lucrative, but it’s not easy money. You’ll need to put in long hours, teach yourself a lot, and take big risks (and few vacations). But with the right mindset, you’ll set yourself up for success from the beginning.
2. Set Aside Capital
No one can profit all the time. You’ll need enough capital set aside to get started and to cushion losses along the way.
Before you quit your day job, try to have at least $100,000 to start with. You can start with less, but it will be harder.
3. Know Your Markets and Securities
Understanding the markets is key to success in day trading. Grow your market knowledge base, and learn about the different securities and how they trade. If you don’t know how different securities work in trading, you can’t build a good strategy.
4. Design Your Strategy
Now, you have what you need to figure out your trading strategy and big-picture plan. Try two or more established strategies to start out with – you don’t have to reinvent the wheel. This gives you a backup plan if one doesn’t work for you.
Ready to Give Day Trading a Try?
Once you know how to start day trading, you still have a lot of work ahead of you. If it were easy, everyone would be doing it. But if you’re completely committed to success as a day trader, you will find it.
Good money management goes a long way to help you succeed in day trading. Not sure how to budget for taxes after you’ve become a day trader? Don’t miss this guide.