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Ultimate Guide for Getting Started in Day Trading (2024 Update)

The idea of day trading is not a new one, it dates back to the times of ticker tapes and telegraphs, but now, with digital tech, it’s a whole different game. Online brokers, real-time data, and tools right at the fingertips of anyone with a computer and net access can try to make a buck or a living in the markets.

In recent years, thanks to that accessibility, day trading has become a popular go-to for many people, but at least 70% leave the first month due to absurd expectations and a wrong approach. So, how do you start in day trading the right way? Well, it all falls back on learning, practicing, and repeating.

Day trading requires a strong stomach. It demands fast thinking, making quick decisions, and maintaining strong discipline. For those who excel at it, the potential gains are significant. Get ready, and let’s start our in-depth exploration of the fast-paced world of day trading.

What is Day Trading?

Day trading is a way to speculate in a market where you as a day trader will buy and sell a financial asset in the same day. Imagine you’re a surfer, with the only exception that you’re not riding ocean waves, but instead, you’re riding waves of price change, volume, market trends, or ups and downs.

What’s the objective? Making small profits from short-term price changes before the markets close. It’s not suitable for those who are cautious or prefer to play it safe. It’s for individuals who can stay calm when numbers are flashing red and green, and who can stay focused on the screen for long periods.

It’s like a strategic game, where the more you play the better you understand it, each move is important, and there’s money at stake (at least later on).

What are the basic tools you need? A computer with an internet connection is the most important, the second would be a nice space to sit and learn. Next, you would need a broker with real-time market data and charting software. Now you’re ready to follow along.

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How Does Day Trading Work? – Understanding the Basics

Before you jump to the chart and start day trading, you need to make sure you have all the necessary knowledge and tools to start. You can see a chart but if you don’t know what are you seeing you won’t do much. So let’s delve deeper into the basics of day trading:

Charts in day trading

All start with your chart, but what is a chart? They are like a canvas, like your treasure map, showing you the highs and lows of the prices in the market. A chart shows you a representation of the price fluctuations that are happening on a given date, the data is historical and you can see different representations, like 1 month, 1 week, 1 day, and 1 hour.

Those prices are shown as bars, ticks, or candlesticks (which are the most popular). Each bar or candlestick is a plot point in this financial narrative, marking the opening, closing, and everything in between. Also, on a chart is where you will do your technical analysis before getting into a trade, you’ll have volume and other indicators to help you with that.

woman holding a laptop pointing to a day trading chart
All it takes to start day trading is a PC and an internet connection, but make sure to learn the basics and practice a lot before using real money.

Candlesticks

Candlesticks are like the language used by the market to talk to you about its price changes, and intent. Each bar represents a fight between buyers and sellers (or bulls and bears), where each side is trying to control the price in a specific time frame.

Imagine this: a candlestick’s anatomy is separated into a body and wicks, similar to a candle. The body indicates the opening and closing prices, with the wicks representing the highs and lows. When the body is white or green, it indicates that the buyers were successful in pushing the price higher by the end of the round. Black or red body? The sellers had the advantage, and the price ended up lower.

However, it’s not only about colors. Body and wick sizes can indicate traders’ confidence. Extended bodies indicate significant buying or selling activity, whereas compact bodies imply uncertainty or a balanced struggle with no decisive outcome.

Day traders analyze these patterns just like a chess player studies the board. They search for bullish engulfing or bearish harami patterns to anticipate the market’s future direction. But what are patterns?!

day trading candlesticks

Patterns

Candlestick and price patterns are essential for day trading, acting as the visual representation of market sentiment and price movement. These patterns on the chart are more than just random shapes; they represent the footprints of the bulls and bears in the financial playground, each sharing a unique story of struggle, triumph, and sometimes, retreat.

There are two sets of patterns, here are some examples:

Candlestick Patterns: are fundamental for market analysis. The ‘Doji’, which looks like a cross, indicates a state of uncertainty, with buyers and sellers locked in a close battle. The ‘Hammer’ pattern, characterized by a long lower wick, indicates a possible shift towards a bullish trend in the market.

Price Patterns: They resemble the chapters of a market’s narrative. The story of ‘Head and Shoulders‘ involves a peak, a higher peak, and a lower peak, usually indicating a bearish result. The ‘Double Bottom’, characterized by its W-like shape, signals a positive trend following a period of decrease.

Those are just a few examples to give you an idea of what it is, many traders focus solely on candlestick patterns while others focus on price patterns, and some others use both of them as a way of confirmation before entering a trade. Which one is better? Both, you’ll find what works best for a while once you start practicing.

bat pattern in day trading
There are many patterns in day trading, the market tends to repeat itself. Make sure to print them and have them close when practicing.

Market Trends

All of the points before, candlesticks, market movements, and patterns form the market trends, those are the conditions or momentum of the market and chart you are watching. There are three types of trends:

Is the market going up? Then it’s an upward trend (bullish), if the market is going down then it’s a downward trend (bearish), what if the market is not going up or down? it’s called a sideways trend.

Whether it’s going up or down, you must find the opportunity to capitalize on those movements. The idea behind it is simple: buy at lower prices and sell at higher prices for a bullish trend, and if the market is going down (bearish trend) it’s time to short sell.

But it’s not that easy, they can suddenly reverse due to market news, economic reports, or global events. That’s why day traders must be adept at reading not just the trends but the signs of a shift (How? with patterns and indicators!)

fay trading chart trend up
The trends tell you the overall move of a financial asset, as well as its direction. Spotting the trend right is essential for a successful trade.

Indicators

In day trading, regarding indicators, you will find two types of people: the ones who say indicators are not useful and the ones who can’t live without indicators. The truth is, most indicators work using different points of data, and historical data, giving you an insight that can’t be hardly grasped from a look at the chart.

In my opinion, indicators are essential for staying ahead of market trends. You can consider them as your market GPS, helping you navigate through the ups and downs of price changes.

Several types of indicators show you different types of data, but the most popular are:

  • Moving Averages, help to smooth out price data, creating a single flowing line that makes it easier to spot the direction of the trend.
  • Volume, acts as the market’s pulse, indicating the strength behind price changes.
  • MACD, is a momentum indicator that tracks the relationship between two moving averages.
  • RSI, the Relative Strength Index, which can indicate when the market is overbought or oversold.

When you use indicators effectively, like moving averages, or RSI, you can easily identify entry and exit points more accurately. Their signals can determine the outcome of a trade. But avoid using too many indicators, instead of helpful, it can prevent you from reading the chart.

Day trade charts and indicators

Wrapping the basics up

Now you know most of the basics and how a trade works, it’s time to move on and get a good grasp on how a day trader approaches the market to start a trade.

Most trading approaches start with one thing: technical and fundamental analysis.

Understanding Technical Analysis: Day trading centers around analyzing statistical trends derived from trading activity, including price movement and volume. While fundamental analysis examines a company’s financials and market activities, technical analysis concentrates only on the price charts of a security.

How do you do this? Applying all the knowledge from the section above, technical analysis is a sum of reading the market, trends, patterns, and indicators. This is quite handy for traders to recognize patterns and make informed predictions about upcoming market movements.

Day Trading Strategies: This is also when day trading strategies show up, but before, let me spoil it for you: there’s no 100% successful strategy that will make you rich overnight.

There are thousands of strategies around the internet, each one gives you a different way or approach to take advantage of market movements.

Advantages of Day Trading

  1. Quick Profits
  2. Liquidity
  3. Leverage
  4. Freedom and Independence
  5. Constant Learning
  6. Adrenaline Rush

Disadvantages of Day Trading

  1. High Stress Levels
  2. Financial Risk
  3. Time-Consuming
  4. Emotional Roller Coaster
  5. Transaction Costs
  6. Addiction Potential

Basic Terms to Know

Like a career, games, or sports, day trading has its lingo or basic terms that you should learn before jumping into the market, they will make the learning process a lot easier. Let’s dive into some basic concepts:

Volatility

With high volatility, prices can swing wildly, offering both chances and risks, remember day traders profit from price changes, so, with low volatility less price swing occurs. Make sure you’re keeping an eye on volatility, it means trader have their eyes on that financial asset!

Liquidity

Liquidity tells about how quickly you can sell or buy something without affecting its price too much. If the liquidity is high, your buy or sell will have little to no impact on the price, but if the contrary happens then the asset has a low liquidity.

Stop Loss and Take Profit

These are your safety nets. Set a stop loss to limit losses when a trade goes south. Take profit locks in gains when the tide turns. Like a seasoned sailor, adjust them wisely—too tight, and you get tossed overboard; too loose, and you miss the ship.

Resistance and Support Levels

Picture this: resistance is the ceiling, and support is the floor. Resistance prevents prices from soaring too high, while support prevents it from falling. As a trader, you’ll draw trendlines to identify these levels. Breakouts or bounces at these points reveal market dynamics.

FOMO (Fear of Missing Out)

FOMO whispers, “Buy now! Everyone’s profiting!” But beware, FOMO often leads to impulsive decisions. Stay grounded; missing one trade won’t sink your ship, there’s always a new trade coming.

Paper Trading

No trees were harmed here! Paper trading lets you practice without real money. It’s like rehearsing a play before opening night. Test strategies, refine entries, and learn from mistakes, all without risking your money.

person using a laptop and a phone for day trading
The terminology for day trading is huge, while they are not hard to learn, the terms are the foundation of your journey, make sure to get them right.

Day Trading Strategies and Styles

While there’s no 100% effective formula or strategy, there are some movements or approaches that happen and work better than others. The market has a memory and it tends to repeat itself, that’s why you have “patterns” and there are people whose strategy is to trade those patterns.

Before making one your gold egg, try different strategies, test them, and find something that works for you. Here are some popular strategies:

Scalping

Scalping involves making trades a lot faster and more frequent than day trading, it all happens in smaller timeframes to profit on small price changes.

In my opinion, scalping is its type of trading, you’re buying and selling within the same day, half day, hour, and even minutes. It’s also the one that consumes the most time, since transactions are smaller, profits are smaller too, so you need a bigger amount of trades throughout the day.

Momentum Trading

Momentum trading centers around riding the wave of market momentum. Traders look for stocks or other assets experiencing significant price movements. Once identified, they jump in, hoping to profit from the continuation of the trend. Effective risk management is crucial in momentum trading.

Breakout Strategy

The breakout strategy is an all-time favorite by many traders, it’s usually the most common and the one with a higher success rate. Remember “support and resistance”? This strategy consists in checking out assets that can possibly break out those ranges.

Basically, if an asset is approaching a resistance you can open a trade whether it breaks it or falls to the support level.

Successful breakout traders capitalize on strong momentum following the breakout.

Reversal Trading

Reversal trading focuses on assets that are following a determinate trend and reverse changing the previous trend. For example, you will look for signs of exhaustion in the trend, after confirming that you would take a position in the opposite direction.

Patience and accurate timing are essential for successful reversal trades.

a chart showing a reversal pattern

Gap Trading

Gap trading exploits price gaps that occur when a stock opens significantly higher or lower than its previous closing price. Traders analyze the reason behind the gap and take positions accordingly. Gap trading requires vigilance during pre-market hours.

Popular Markets for Day Trading

As a trader you may find yourself more comfortable trading certain assets than others, that’s why understanding the different markets available is crucial, also, knowing what is available to you and what is not will make sorting and finding trading opportunities easier.

Here are some of the most popular markets for day trading, their unique characteristics, and considerations.

1. Stock Markets

The stock market is by far the favorite asset among traders, and the reason is obvious. Most companies and services have gained a position in many user’s daily life, and here you’ll be able to buy and sell shares from publicly traded companies like Apple, or Amazon.

Here are some key indices to consider:

  • NASDAQ: Home to tech giants like Apple, Amazon, and Google.
  • S&P 500: Lists five hundred widely traded US stocks.
  • Dow Jones: Thirty influential US companies.

While the stock market offers ample opportunities, fierce competition, and requirements may prevent beginners from getting in.

2. Futures Markets

The futures market works a bit differently, here you trade futures contracts. You agree (or make a contract) to buy or sell specific assets at fixed prices and dates.

Some of the popular futures markets that people like to trade are commodities like oil and gold. These markets are great for day traders because they offer nice liquidity and volatility.

3. Forex Markets

Forex means foreign exchange, which is currency trading against each other on different pairs like the EUR/USD which is an all-time popular.

This market has gained a lot of popularity in recent years due to its exposure, accessibility, and familiarity. Its markets are open 24 hours a day, from Sunday to Friday due to the many different time zones.

4. Cryptocurrency Markets

Cryptocurrency is the newest and most popular market right now due to the many opportunities it brings, it’s one of the easiest markets to get into, you can open an account at any exchange and start trading with $50 or less.

The assets in this market are highly volatile and offer a higher risk but also a higher reward.

How Much Money Do You Need for Day Trading?

It really depends on your broker, the type of account you choose, and the financial asset you trade. There’s a common misconception around how much money you need to start day trading, some say you need a minimum of $25000 others say you need at least $50000 to do ok. While it’s not completely a lie, it’s misunderstood.

For example, you can start trading with $500 in a cash account, but that means you won’t be able to use leverage and may face other limitations.

On the other hand, if you want to use a margin account you would need $250000 to start. While it’s true that the more capital you have the more flexible you can be, but that should not stop you from starting. However, starting with more can help absorb potential losses and provide more trading opportunities.

But not everyone has 25 grand to start, thankfully not all markets work under the same conditions, you could look into forex or futures, where the entry fees aren’t as high for a margin account. Some say you can start with as little as $500 to $1,0002.

Great right? but keep in mind that even with that, some brokers limit accounts to use leverage and you’ll need a minimum of $2000 to $5000 to start.

Minimum Account Balances by Account Types

Margin Account

A margin account is a line of credit from your broker, to allow you to borrow money per trade to buy more than you actually can handle. With a margin account, you leverage your investments, and this means that you can control a larger position with a smaller amount of your own money.

For example, you can put $500 to control $1000 in a trade, sounds good right? But don’t get excited yet…

While a margin account can make you earn more it also can make you lose a lot more. If that position of $1000 fails and it drops 10% you will be losing $100 from your $500 instead of $50. It’s a high-risk, high-reward approach, but I highly recommend you consider this account after you have practiced a lot and have a lot of successful trades on a cash account.

So, how does it work? If you’re using a margin account to trade, you’ll need to open with and maintain a minimum balance of $25000 for US residents as far as I know, laws for other countries may be different. If the balance in your account falls below that level you’ll get a “margin call”, and you’ll need to deposit more money. This is called “Maintenance Margin”.

Cash Account

On the other hand, a cash account besides being the most beginner-friendly, you won’t be able to use leverage or margin at all. You will open positions with the money available in your account, and your wins and losses will be attached to that.

This means your buying power equals the amount of money available in your account. Nothing more, nothing less.

It’s the best way to start day trading, you will have control over your losses and wins, as well as no pressure of debt and no restrictions of a margin call.

a woman holding several dollar bills
I highly recommend focusing on a cash account before jumping for a margin account, that way you get a good grasp of it.

Day Trading Regulations

Learning and knowing the regulations and rules around trading is a must for anyone who wants to start day trading, many legal requirements and restrictions vary by country. But they usually involve registration with regulatory entities, following securities laws and broker rules.

Most of the time you won’t need to worry about anything if you stick to the previously discussed points. For example, if you have a margin account and you stay on top of the $25000 you won’t need to worry about a margin call.

Understanding Pattern Day Trader Rules

Another important thing to keep in mind is PDT or pattern day trader rules if you’re trading U.S. stock markets. In 2001 the financial regulator FINRA put in place the rule, and it can only be applied to margin accounts. You’ll be labeled as a “pattern day trader” if you take more than 4 trades within a period of 4 days and you’ll need to maintain a minimum of $25000 as a balance in your account.

Day traders from the US must adhere to this rule and brokers must enforce it. There are several options for this, and the most common is using a cash account, or using an international broker.

Useful resources:

What do you need to start: Day Trading Tools

To start in day trading is relatively easy, all you need is real-time market data, a broker, and a scanner or screener (and money of course).

Nowadays you can easily find platforms that offer those services, and sometimes all in one place but as you trade and practice you’ll notice that different platforms may show different data due to lag issues.

Brokers

The core of day trading is the market, and the market comes with data. The more accurate this data is the better your performance will be. A reliable market data platform will give you up-to-the-second information about the market like prices, order flow, and volume.

Here are a few good options:

  • Thinkorswim: A feature-rich platform by TD Ameritrade, perfect for both beginners and experts.
  • TradingView: A web-based platform with a vibrant community and advanced charting capabilities.

Robust Chart Platform

While brokers offer charts and they are good to start with, most of them tend to be “basic” for many traders, and in order to stay on top there are some basics that any chart platform must offer. For example, it must include 1-min charts and lower, indicators, clean market data, and charts for IPOs.

If you fail to have accurate charts you won’t be able to make a decent technical analysis. Good charting software is TC2000 and eSignal.

Scanners or Screeners

Even if you decide to trade only stocks or only futures, there are thousands of each and while sticking to one asset can play in your favor, you’ll get more opportunities checking scanners or screeners. That way you get a general view of the market.

Most of these tools can filter financial assets, whether it’s stocks or crypto, you’ll be able to filter it based on specific criteria like winners, losses, volume, and more.

  • Trade Ideas: A robust scanner with customizable alerts and pre-built strategies.
  • Finviz: A user-friendly screener that visualizes data through heat maps and charts.
  • StockFetcher: Allows you to create custom filters using plain English commands.
a person using a phone with financial market screener
Scanners or Screeners are useful but they can induce information overload, make sure to properly filter them and check out what you need.

Risks of Day Trading

The Quick Riches Issue

Many people approach day trading chasing the “quick rich” issue or dream, there are indeed many cases of people turning a small investment into a fortune, but most of the time it’s not realistic and is a complete smoke ball.

More traders are making a consistent monthly profit than traders that became rich overnight, so, don’t come to the market chasing quick gains, or instant profit because you’ll leave disappointed and without money.

Day trading success stories are rare, but it’s possible if you are willing to learn the basics and practice a lot.

Financial Ruin

I don’t know how many times I have read online about people who found financial ruin in the markets, and after you read their history you can conclude that all of them made one mistake, they jumped into the markets without knowing anything or without enough practice.

The goal here is to learn the basics and paper trade your way to the top, do it until you find something that works for you, and after that jump to the market with real money.

Even after that, you’ll need to have good risk management to avoid huge losses.

Information Overload

Day traders live between data. Many times, most of us tend to consume a lot of financial news, and a ton of different charts at once, and use several indicators just to end up with an overload of information, and this flood of information can overwhelm even the most seasoned trader.

It’s good to stay on top of the market, and check out charts and indicators but don’t overdo it, too much information can paralyze you and you won’t be able to make good decisions.

Learn to filter the noise, filter the signals, and focus only on the relevant ones.

Market Manipulation

Day traders believe they can outsmart the market. But market manipulation, pump-and-dump schemes, and coordinated attacks can catch them off guard.

Unscrupulous players exploit vulnerabilities. Traders must stay vigilant and recognize signs of manipulation.

Burnout and Health Risks

Another common issue among traders is overdoing it, I have known traders who are in the market for 14 hours a day every single day. You can be profitable the first week or 15 days, but if you burnout yourself you’ll probably lose all that the next week.

Learn when to stop and walk away from the chart, don’t chase profits or trades, and remember there’s always a trade waiting for you.

Don’t take the importance of sleep, exercise, and mental well-being while trading for granted, those are an essential part of making money in the markets.

Remember that, burnout is real, and stress-related health issues, sleep deprivation, and strained relationships take a huge toll.

Technology and Security Risks

Thanks to the advances in technology you can trade whenever you want, from any place in the world. But it’s a double-edged sword. On one hand, it gives you all the tools you need to make trades, but on the other hand, it opens a window for some security issues you must be aware of.

Here are some of them:

  • Cybersecurity Threats: It’s not new and not a mystery that cybercriminals often target traders and online trading platforms due to the amount of financial information and money they can handle,
  • Glitches and System Failures: Since trading relies a lot on internet connection and software, glitches and failures can happen, resulting in missed opportunities or bad trades.
  • Broker hacked and inside threats: Unfortunately, even if you have a good personal cybersecurity practice, you can still be affected if your broker gets hacked, while this doesn’t happen often it can happen.

How To Start Day Trading

Understanding the Basics

Before jumping into the market the first thing you need to do is learn the basics, start by learning the resistance and supports, then read some books about trading, learn how the market works, and read about volume. The goal is to understand the market as much as you can.

Next, you can start reading about technical analysis and learning about price action, the patterns, and about candlesticks. You should pair this with the paper trader, the best way to understand this part is by practicing all you can.

Setting Up Your Day Trading Account

The next step is to set up a trading account and the tools you need. To start you can choose a broker that lets you do paper trading, it’s crucial. Make sure to check out other things like fees and market data.

Look for a broker that has a strong reputation, a robust platform, and great security.

Setting Up Your Trading Space

One of the advantages of day trading is how flexible it is, you can trade from anywhere but while you learn, practice, and get used to the market your environment plays a significant impact in your success.

You’ll need a computer with a reliable internet connection, the platform and tools you choose, and a distraction-free workspace.

Practice and Paper Trading

If after learning the basics you’re still a bit lost, start by doing technical analysis, draw some support and resistance lines, and keep going from there. The next step is to practice all you can, practice until your technical analysis is good, until reading volumes, patterns, and candlesticks come out naturally.

Remember to always do this on a paper account, many brokers let you set up those accounts. You will be able to trade like normal but with fake money.

Start a Day Trading Plan

While practicing you will notice that some approaches work better than others, and some strategies work better for you than for other people, and vice-versa. Take advantage of this, find what works best for you, and build your trading plan and rules with that information.

For example, a strategy involving candlesticks, indicators, and other confirmations worked well for several different trades, make sure to write everything up and set rules like “don’t open a trade if two of my confirmations are in place” or something like that.

Remember a well-crafted trading plan is your roadmap to success. Some common stuff to add to a plan are your financial goals, risk management, and the criteria for entering and exiting trades.

Make sure to make it detailed yet flexible, allowing you to adapt to changing market conditions.

Rinse and repeat

Rinse and repeat, and never stop learning. Knowledge is power, especially in day trading. Get involved in a community and find other traders who are doing well in the market or have similar goals as you.

Try online courses, webinars, and books to build a solid foundation of trading knowledge.

Frequently asked questions

Is day trading a good side hustle?

Yes, day trading can be a side hustle if you’re willing to focus on the learning path without quitting your job and accept everything that comes with it. The thing is, day trading needs consistency and time to be profitable, and most side hustles lack those skills.

The real answer should be: yes, day trading can be a side hustle after you have learned the basics, practiced a lot, and found something that works for you.

How many trading days in the year?

In 2024, you can expect around 251 trading days in a year, and in 2025 you can expect 250 trading days. A trading day is basically when the stock exchanges are open, so, the number of days available to trade depends on how many days are the exchanges open, and those are affected by weekends and holidays.

So, in general, 9 holidays affect the market: Memorial Day, Independence Day, Labor Day, President’s Day, Good Friday, New Year’s Day, Martin Luther King Jr Day, Thanksgiving Day, and Christmas Day.

Is day trading a scam?

No, and it’s far from being a scam since day trading is more inclined to be an action or profession. I mean, would you ask if being a cashier at a store is a scam? No, sketchy stores can be a scam.

So, day trading is not a scam but you need to be careful with sketchy brokers, software, platforms, and other stuff.

How to start day trading with $500?

The best way to start day trading with $500 is by learning the basics and practicing a lot. Set aside the money and start reading about the market, next, practice or paper trade a lot, and come up with your trading plan and rules.

After you have your foundations in place and you feel comfortable, take the $500, create a cash account with a broker, and start your trading journey.

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