5 Steps To Day Trading (Includes 9 Day Trading Rules Every Day Trader Needs To Follow)

Day Trading-What Is Day Trading?

Day Trading

What is day trading? Here’s the definition of day trading: Day trading is a form of trading where traders are just interested in buying and selling in order to make profit using the small daily price fluctuations  in a period of one day.

This means that in day trading:

  1. traders do not carry their live trades over to the next day. At the end of the day, they make sure all their trades are closed
  2. and they live to trade another day tomorrow.

What Is Intraday Trading Then? 

Is there any difference between intraday trading and day trading?

No.

Intraday trading simply means the same thing as day trading. Forex scalping is an intraday trading technique where trades are executed and close in minutes.

Day Trader-What Is A Day Trader?

A day trader is someone who dresses in an expensive $10,000 suit and sits in front of 10 massive computer screens, right?

Nope…

Is a day trader someone in pajamas?

Yes…most likely.

Well, a day trader is someone who spends the looking for opportunities to buy and sell forex, shares, commodities etc with the aim of marking profit from the daily price fluctuation of the market.

day trader is any trader that practices day trading. There are two major groups of day traders that are involved in day trading:

  • the retail trader and
  • the institutional trader.

The only difference between these two is that a retail trader simply traders for himself where as the institutional traders don’t don’t trade their own money because trade their financial organisation’s trading account which means these institutional traders can trader large trading accounts trading multi million dollars positions.

These institutional traders can have the capacity to use computers to assist them trader. This is called algorithmic trading.

If you stay at home and trade online as a day trader, then you are a retail trader and most likely, you will be trading your own money

To put it simply, if you are a retail trader, you are a very small fish in the ocean…

 

5 Steps On How To Day Trade

So day trading interests you…the next big question is: how to day trade?

As in all things in life that are new, if day trading is something  that you want to do, then you’ve go to learn.

Learning how to day trade is not just a one step process, it takes time.

Here are the steps on how to day  trade:

Step 1: Educate Yourself 

This is the very important part in your process in learning how to day trader. Seriously, you cannot fly a plane if you don’t know how to fly it. You got to know how to fly the plane. And that takes hours and lots of training for you to eventually fly a plane.

Similarly, learning to day trade will take time (if you’ve never done any trading before). You’ve got to spend time reading and education yourself.

Educating yourself about day trading involves:

  • understanding that day trading is risky and that you can loose all or most of your money.
  • so knowing that such risks exist, then next thing you should be really looking into and studying about is how now to loose money in day trading. This is trading risk management.

Steps 2: Decide Which Market You Want To Day Trade

You’ve got to decide which financial market you want to day trade. Is it the currency (forex) market? Or do you want to day trade the stock market? Or do you want to day trade commodities or do you want to day trade futures?

So picking a market to trader also forms part of the process of becoming a day trader. If  you are just starting out, it is important to only stick to trading one market.

This is so that you can understand how it works and begin to have an appreciation of the dynamics involved moving and shifting this market…and you cannot learn this by only spending a few months or days trading that market. It takes a lot of hours and chart time.

Step 3: Practice With A Virtual Trading Account

As a trainee pilot needs a simulator, a day trader beginners needs a virtual trading account? What is a virtual trading account?

Well, a virtual trading account is also called a demo trading account.  It is a trading account where you open with your broker that is only made up of virtual funds (not real money…virtual money so no risk at all to you).

This will allow you to trade live market prices with virtual money so you begin to know:

  • how to trade using the trading platform provided by the broker
  • learn how to use the different types of orders like buy stop, sell stop, limit orders etc
  • learn how to take profit and learn how to have a trading loss
  • learn about the different technical indicators on the trading platform like MACD, RSI etc.
  • learn about candlestick and price action

Check brokers to see if they allow you to open virtual (demo) trading accounts and open one up and give it a go!

Step 4: Open A Live Day Trading Account

Finally, you’ve graduated from day trading university…now it is time to be let loose in the world. You fund your day trading account.

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Now, remember, depends on which type of financial market you choose to trade, your broker will tell you the minimum amount of money you need to open a day trading account.

In forex, you can open trading accounts from as little as $50 and up. But seriously, how do you expect to make money from a $50 trading account?

You’ve got put in a lot more that that…

Here’s the thing, you day trading account needs to be adequately funded.

If you can afford $10,000-$20,000 trading account then do it. But make sure that that money is something that if you loose it all, the wife won’t have to kick you out of the house!

Step 5: Day Trade

Now you are ready to day trade. All the hours and practice you’ve had learning and playing around with the demo trading account is finally over.

Now you are ready to do the real thing….You see a sell setup happening…with pounding heart, you place your very first sell trade.

You will go into day trading with dreams of making millions…but REMEMBER!  You are also going into a market infested with “sharks”…If you are not careful, you will get eaten.

The most important thing of all in day trading is trading risk management. If you fail to practice this, you will see your $20,000 day trading account grow wings and fly away, never to be seen again.

 

Day Trading Strategies

How many day trading strategies do you need to day trade?

It really depends but in all honesty, what  you will find is that most day traders stick to only one or two day trading strategies.

When you day trade, you really don’t need a lot of trading strategies to play around with. Why? Because you only have a small window of opportunity to trade in a day, which can be only 8 hours or  10 hours or 12 hours.

It is important that you find a day trading strategy that appeals to you.  Every day trader is different therefore each one will have their one preferred day trading system(s). That means that what works for one may not work for you.

So what kind of day trading strategies are best for day trading?

Well, in my opinion, a good day trading strategy is a system where the trading rules are easy to understand and implement as well as the entry should be at a ideal price level where as soon as price hits that level, it has the most likely chance of going in the direction of your trade.

Any of the forex trading strategies on forextradingstrategies4u can be used as a day trading system. But there’s only one component that needs to be adjusted: the timeframe.

Day trading strategies generally would require that you trade anywhere from 1 minute up to the 1 hour timeframe. Which simply means, if a trading system is based on a 4 hour timeframe, instead of using the 4hr timeframe, you need to use a much smaller timeframe so that you can be able to spot trading opportunities in smaller timeframes.

Some forex trading strategies which I think can make good day trading strategies are listed below and I suggest you use anywhere from 1 minute up to 30 minute up to the 1 hour timeframe for these:

  1. trendline trading strategy 
  2. trendline breakout trading strategy  
  3. trendline trading system with the 123 pattern
  4. 123 trading strategy
  5. floor traders method
  6. demark trading system
  7. trendline trading strategy with the stochastic indicator
  8. trendline breakout strategy with 200 ema
  9. resistance level breakout strategy
  10. broken trendline retest trading strategy
  11.  Picking Tops And Bottoms Forex Trading Strategy Using ADX Indicator
  12. cci trading strategy with support and resistance levels
  13. Bollinger Band With Horizontal Support And Resistance  Forex Trading Strategy

9 Day Trading Rules Every Day Trader Needs To Follow

These are the 9  day trading rules every aspiring day trader should know and follow:

1. The three E’s: enter, exit, escape

Every day trader must have an entry price, and exit price and escape price.

What does this mean?

It means, before you press the buy or the sell button you must know when you want to get in a trade and this is dependent on your trading system’s signal and then at what price you will exit your trade at a profit or using trailing stop  etc and then if your trade does not go as expected, when to exit (escape) with a little loss.

When you day trade, it is very important to cut your losses short.

2. Avoid trading during low market volatility periods

If you are trading the forex market, you should avoid trading during the day when there is low volatility. This is especially true during the Asian forex market session.

What does low volatility mean?

It simply means that price will not move as much. So trying to make a profit in such a condition is going to be really difficult because the market will see as slow and stagnant.

3. Rookie traders should avoid using margin

Day trading the forex market involves margin trading. Which simply means you are borrowing much of the trading money from your forex broker to trade with only a little contribution by you.

Trading on margin can increase your trading profits as well as increase your trading losses. Learn much as you can about margin trading and forex leverage before you start day trading.

4. Do you have an trade exit plan?

A trade exit plan can be:

  • when take profit target is hit
  • when trailing stop loss order is hit.
  • when you have specific time or day that all trades must be exited.
  • or exit trades before a major forex news is about to be released
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Why is a trade exit plan important?

  • because the forex market is unpredictable and its better to lock your profits, take profits or cut your losses short…all these are exit strategies.

5. Keep a journal of all your trades

It is important to keep a record of all your trades…Yes, you will have trading records shown in your trading platform but what I mean here is screen capturing your trades and then making notes of why you took a trade, where you placed your stop loss and profit targets and why and if you win or loose, this is your record of what you did.

You will learn a lot and improve as a day trader when you do that.

Most important of all, you must learn a lot from your loosing trades because that’s where you can really see why you lost, or if you risked too much in a trade or if you did not follow your trading risk management plan you had in place in the beginning.

Your loosing trades will tell you a lot about yourself as a day trader.

6. Practice day trading in a paper-trading account

I mentioned this in the beginning of this article…you need to know how to trade before you actually trader. Luckily, those days, opening a demo trading account with a forex broker is really easy. Learn how to trade in a demo account before you trade with a real live account funded by your own cold hard cash!

Don’t open a demo trading account with with a $50,000 virtual money if that is not what you are going to start trading for real with! That makes no sense at all.

If you plan on start trading with real $5,000 then you must open a demo trading account with $5000 of virtual cash.

7. Never act on tips from uninformed sources

One aspect of being a successful day trader is to be independent in your trading decisions. Do not make your trades based on what someone said or some analyst’s report.

You must learn to be confident in your system and in your own judgement in taking a trade. If you cannot do that, you should never try day trading in the first place.

8. Cut your losses

If you are a person that can’t cope very well with loosing, day trading is not for you. In day trading, trading losses are part of winning.

The important thing about your trading losses is that you must cut them fast. Do not let your trading losses increase for too long until you loose a large chuck of your trading account.

Calculate the risk you want on a trade before you place a trade and if you loose, that is the risk where you already knew what was at stake before you took a trade so you were emotionally or mentally prepared for it.

The problem really happens when you trade with a large trading risk. Every small price movement in the wrong direction only increases your trading risk.

As a day trader, you have to be able to handle trading losses and learn how to control them.

Remember the three E’s mentioned previously: (enter, exit, and escape).

9. Be willing to lose before you can win

If you start day trading thinking you are not going to get losses, then you are in for  a really big surprise.

Having profitable trades is exciting but handling trading losses is a totally different story.

Demo trading will never prepare you for the emotional roller coaster when your real money is on the line. Believe me, you become a really different person when your real money is on the line.

In day trading, you are going to have loosing trades and that’s a fact of life of a day trader. Learn to handle it! There’s not other way to escape from it.

The smartest way and the profitable way about it is to manage your trading risk, that’s all.

As long as you cut your trading losses short and your winners are more than your trading losses, you are going to do well in the long run as a day trader.

You risk management plan is important:

  • how much are you risking for each trade you place?
  • are you comfortable with the risk for each trade if that trade is turning out to be a looser?
  • do you have a number of loosing traders in a row that will cause you to stop trading for the day?

How To Become A Day Trader Online?

How do you become a day trader? Being a day trader is appealing.

Who has never dreamed of working from home, sipping coffee in the morning in pajamas in front of your trading screen and not even bothered about the work alarm clock anymore?

You see, these days, it so easy to have access to the financial markets. All you need is an internet connection, a laptop or mobile phone and you can day trade online.

Now as simple as it may seem, the road to having success in day trading is only allotted to a few traders…succesful day traders.

These successful and profitable day traders do not necessary have a high IQ or PHD graduates. No, typically, they are just ordinary blokes and ladies but the only difference between them and many other struggling day traders is the fact that for these successful day traders, they have learnt to manage their trading risk, they have a system and follow and stick to the plan and that’s why they are successful.

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These are the 10 steps on how to become a day trader:

1. Conduct an Honest Self Assessment:

Do you have the knowledge and the skills to success? Does your lifestyle allow day trading? Are you willing to work long hours or is there a chance that your girlfriend will dump you if you do? Do you like taking calculated risks?

2.  Arrange Sufficient Capital:

In day trading, you need money to make money. There’s not way around it. The question is:Do you have enough money to start day trading?

The amount of money you start to fund your day trading account should be sufficient enough to handle the drawdown periods….this happens when you have losing traders and your trading account is decreasing.

If you stick to your trading risk management rules, draw downs should not be an issue to you.

3. Understand the Markets:

Day trading in the forex market or even the equity markets requires that you really on on top of what is happening around the word.

High impact news can can create disaster for you if you do not know when that is going to happen. It is better for you to be prepared for such situations.

4. Understand the Securities to Trade:

Share behave differently from the the currency markets. Each financial markets has its own characteristics somewhat and whichever you trade in, it makes sense that you understand how it works and behaves and what the requirements are for trading each of those.

If you don’t understand what is required to trade these instruments, this can lead to trading losses.

5. Select or Design a Suitable Trading Strategy:

Day trading requires that you have a suitable trading strategy to use.

It is best to find a simple trading strategy that you are comfortable with and use that.

6. Have A Trading Plan:

Having a day trading strategy alone doesn’t make you a successful day trading.

You need to also:

  • decide on how much you are going to risk in each trade
  • how often do you intend to trade each day? Do you make only 4 trades a day?
  • what is your maximum consecutive loosing trades in a row before you quite for the day?

All these types of questions above must form part of your trading plan.

7. Understand and Practice Money Management:

This is the holy grail of day trading: good money management.

Fail this and forget about day trading.

8. Forex Brokerage Charges:

If you are a day trader, you’d be trading like crazy…what I mean is the the number of trades you place each day will be a lot.

This means over a month period, the number of trades you take compared to a swing trader will a huge.

A swing trader may have only 10 trades during the month and you as  a day trader may have made 100 trades.

Now, for example, if the cost of the trading transaction charged by the broker is $10, then you the day trader would have spent $1000 on brokerage costs but the swing trader would have only spent $100.

9. Simulate or Back Test on Historical Data:

It is important to start demo trading before you put your real money on the line. Demo trading gives you the chance to test out your day trading strategy to see how it performs on real market conditions. Or you can take it up a notch and backtest your trading strategy to see how it has performed in the past. This can give you the confidence in your system if you know if has performed well on back tested data.

But having said that, a good back test results does not guarantee day trading success.

10. Start Small, Then Expand:

Depending on your financial status, you may not even have a huge day trading account to start with. That’s ok, start small an work you way up.

Never take larger risks that can wipe out your trading account if the trade moves in the wrong direction. Proper trading risk management is what is going to keep you day trading for a very long time.

It is really hard to get back your trading account back up to the level before when you had 100% capital in your trading account if you loose a huge chuck of your trading account already.

Your best option is to start small, build up slowly and then slowly expand. Don’t take huge trading risk on trades that you think are going to be “home run trades.” Such a trade like that can go wrong and wipe out  your trading account lighting fast!

How To Make Money Day Trading

  1. Educate yourself and learn
  2. find a day trading strategy and demo trade for a while to gain confidence and know how to trade.
  3. fund your trading account with real cash
  4. manage your trading risk well and cut your losses fast.
  5. As long as your trading losses are small and your trading profits are huge, you will make money day trading.

Can You Make Money Day Trading? Day Trading For A Living?

Yes, you can make money day trading.

The real question is how much money you are making compared to how much money you are loosing.

If the amount of money you are winning is greater than the amount of money you are loosing, than you are definitely doing something right in day trading and eventually you’ll find yourself day trading for a living.

Day Trading Forex