Many investors are content to play the long game, building wealth over time through a well-balanced stock portfolio. But day trading offers the allure of massive profits and startling growth.
Just ask Tim Grattini, a 24-year-old trader who turned $1,500 into over $1 million in just three years. While he calls it “a slow process,” most investors would love to see those kinds of returns. Consider this your guide to day trading for beginners. We’ll look at some tips and strategies to show you how to get started in day trading.
What Is Day Trading?
Day trading refers to the practice of buying and selling stocks and securities in relatively short periods of time. There’s no real standard here, but most day traders don’t hold an asset for more than a few days, and sometimes for only a few minutes.
This time commitment also means that day trading is a very active investment strategy. Rather than simply filling their portfolio with a variety of diversified stocks, day traders spend their days glued to the screen, trying to optimize their trades to earn as much money as possible.
Is Day Trading Risky?
Unfortunately, for every story of success, there are other stories of failure and financial ruin. Day trading is an extremely risky investment strategy, and even successful traders like Tim Grattini can’t help but compare the process to gambling.
But that’s not to suggest that day trading can’t be done wisely. The day trading tips and strategies in this guide can help you improve your ability to navigate the world of day trading and help minimize the financial risks involved.
What You Need to Get Started in Day Trading
Wondering how to get started in day trading? The basic setup process is fairly straightforward. You’ll need the following:
A Computer and High-Speed Internet
You’ll need a fast, reliable internet connection in order to make your trades at the optimal moment. A slow connection can prevent you from having access to the latest data and can even prevent you from making a sale or purchase.
Technically, it’s possible to make trades using your phone or mobile device. But you’ll gain the greatest agility from a laptop computer or desktop PC.
This setup will give you the greatest access to multiple tabs and websites for performing research and making your trades. If you want to go all out, you might consider using two monitors to keep relevant data in front of you at all times.
A Trading Platform
The trading platform is what will actually enable you to make your trades. There are multiple options out there, so beginners should test out a few to determine which platform they like best.
In some cases, this will be determined by your broker. If your broker uses a particular platform, you might want to shop around for a few brokers to find the right combination of fees and features.
Your broker facilitates the trades, usually in exchange for a nominal brokerage fee. These fees vary, but that doesn’t mean you need to find the cheapest broker out there. Paying a little extra can be worth it, as your broker might be able to provide guidance or even tech support when you need it most.
Day Trading for Beginners: What to Look for in a Stock
Day traders don’t pursue buy-and-hold stocks. Instead, they look for stocks that are ideal for rapid turnaround. What makes an ideal stock for day trading? Here’s what to look for:
Liquidity means you’ll be able to easily enter and exit a stock. This liquidity makes it easier to buy and sell a stock at an ideal price and increases your chances of generating a profit.
You’ll want to focus on stocks that display high volatility, which means that the price rises and falls dramatically in a short period of time. This volatility lets you buy low and sell high, though it also carries the risk that you’ll lose money in the sale.
Trading volume indicates the demand for a particular stock on a given day. You want stocks that have a high trading volume, as this means that there is greater interest in that stock, which corresponds to greater overall value.
Tips for Day Trading
There’s no magic formula for success, but there are some ways that you can improve your performance. Here are some day trading tips that you can integrate into your strategy:
Set a Budget
Before you get started, establish a budget. How much are you willing to invest in day trading? If you have a family, talk it over with them before you sink your savings into this investment strategy. Never invest more money than you’re comfortable with losing since there is considerable risk in day trading for beginners.
Practice Makes Perfect
Most trading platforms offer some sort of demo mode, which basically simulates the stock market so that you can practice your strategy. Granted, this simulation rarely matches the ups and downs of the real market, but it’s a great way to practice these tips for day trading and hone your strategy before you start using real dollars.
Set Small Goals
Never bet all of your chips on a single hand. Start by investing small amounts of money that you can live with losing. Remember, when you’re first getting started, you’re bound to make mistakes and lose money. Investing small amounts will mitigate this risk while you learn the ropes.
Don’t Just Go with Your Gut
It’s easy to react emotionally when you’re in the thick of it. But one of the best day trading tips is to keep a level head whether you hear good news or bad. Do your research, make calculated decisions, and don’t simply react out of greed or fear.
Avoid Penny Stocks
Penny stocks might seem like an attractive option since you can usually grab these stocks for a low, low price. But that also makes it harder to flip these stocks for a profit. It’s smart to look for deals but avoid these sorts of bargain-basement stocks.
Use Limit Orders Where Possible
Limit orders allow you to exercise greater control over your trades. A limit order sets a specific price when you’re buying or selling. This approach prevents you from paying too much when buying a stock, and it can also automatically jettison underperforming stocks, so you don’t lose too much.
Set Reasonable Goals
As a beginner, you’re unlikely to generate huge profits overnight or even in your first month or so of trading. Pace yourself, and give yourself time to really learn the system and get used to the process. Once you gain greater experience, you can expand your expectations and trade a bit more aggressively to generate profits.
Expect to Lose
Don’t take this the wrong way, but you’re not as good at picking stocks as you think you are. In fact, there are some who argue that even experienced investors can’t always pick a “winning” stock.
One of the best tips for day trading might simply be to acknowledge that you don’t always get the results you’d like. Don’t get discouraged. Learn from what went wrong, and make sure that your wins outpace your losses so that you can generate a profit.
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