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How To Start Day Trading Stocks: The Ultimate Guide

day trading stocks

Day trading is not like a buy-and-hold strategy followed in long-term investments. The buy-and-hold approach doesn’t require much time. You just have to add the day trading stocks to your investment portfolio based on your research which takes a short time period out of your schedule. On the other hand, day trading is like a full-time job. Many traders have day trading as their primary source of regular income. 

Day trading seems very lucrative from the outside but consider the associated risks is an important aspect. Therefore, you should start day trading in the safest way keeping all the crucial things in mind. So get your hands in intraday strategy by managing the risks properly. 

If you are a beginner and start your day trading career, we are trying our best to show you the right path to begin with, day trading by this step by step guide. 

What is Day trading?

Day trading is one of the short-term active trading activities in which traders buy or sell securities on the same day before the market closes. Day trading is the process of looking for opportunities to get the slightest gains from small price movements. Successful day traders typically open their position by carrying out a thorough technical analysis and stick to their strategy. 

Day traders closely track the variation in share prices to gain profits. They look for quick gains by monitoring the stock indices trends. Day trading offers great rewards only when you put in hours to make your technical analysis skills strong.  

It is a myth that day trading is a ‘get rich quick scheme. From the mentioned phrase, ‘get rich may be right, but ‘quick’ does not fit here as this approach to make money requires skills, knowledge, and some experience to finally become a successful day trader. 

First, hone your skills and gain the knowledge to start with demo trading. Then, after gaining some confidence, you can switch to live trading. We will discuss demo trading in detail later in this article. 

So here is the safest way to approach day trading stocks as a beginner or novice trader. 

Tips to start day trading stocks

Find the best broker

One of the most important things that you should keep in mind before start day trading stocks. The process of selecting the right broker can be overwhelming. Traders often get confused due to the large of brokers available online. Do well research before choosing the broker and open a trading account without being influenced by fake reviews and advertisements. 

So what are the parameters you should check before choosing a suitable broker for day trading stocks?

  1. The broker should be regulated. First, check whether a reputed financial authority regulates the broker or not. Then, to deep dive into the regulation, you can go to the broker’s website and find out the license and registration number.
  2. The brokerage firm should offer the MetaTrader4 (MT4) platform. The MT4 trading software is award-winning software that short-term traders widely use.
  3. The broker should offer various account tiers according to the level of the trader. The beginner should get favourable conditions to start day trading with the broker. 
  4. There should be the right amount of technical or analytical tools for technical analysis to compare the trends accordingly.   

All of the above are the qualities of a good broker. You can find all of them in ABinvesting brokerage firm. In addition, the broker is well known for its services to its clients by providing a comfortable trading environment.

Open your demo account.

This is the most crucial step for beginners. Novice traders must open their demo trading account before getting into actual trading so that you can furnish your skills and get familiar with the trading platform. You can open your demo account for free. Many brokers like ABinvesting offer free demo account for traders to practise day trading. 

Demo trading has a variety of uses, each with its own set of risks and rewards. For example, when using the demo account, one can take a significant risk. But, on the other hand, because there is no real money, s/he can use a large amount of capital. Thus, your future success is determined by what you do with your demo account. 

So, as a final piece of advice, treat your demo account as if it were a live account. As much as possible, keep it real. Make sure you’re comfortable with the trading platform. You must learn other tactics other than the ones you learned on a demo account before joining the actual market.

Using a demo account, you may quickly learn how the market operates. Traders are frequently perplexed by market patterns that affect the volatility of financial instruments. At times like these, a demo account can come in handy. Whether you’re a novice or a seasoned trader, don’t forget to experiment with different market techniques.

Choose the capital you can afford to lose

Choose the amount of capital that you can already lose. As a beginner, open your position with large capital is a huge risk. To minimise the risks associated with day trading, you must make an informed decision regarding your capital. Unfortunately, many beginners often commit the mistake of entering into trade with the amount of capital they cannot afford to lose. Then they end up losing all the money, including the capital.  

The principal amount defines your risk appetite. Not only beginners, experienced and seasoned traders also consider their risk appetite. The only difference is that more experienced and successful day traders have a high-risk appetite compared to beginners. 

As you begin your day trading journey, you will make several mistakes which is essential to learn the process so that you won’t repeat them. This is why risks and losses are inevitable at the beginning. So choose the principal amount that satisfies your risk appetite. Other than that, selecting the right amount of capital will also influence the risk/reward ratio. 

If you mindfully use your capital after thorough research on day trading stocks, the probability of reward increases and potential risks decreases.  

Pick stocks for day trading

Various factors come into play during the process of picking the right stocks for intraday trading. From liquidity to the current intraday trend, you should consider everything while day trading. Always choose stocks that are suitable for the intraday trends. Traders go after the popular stocks mindlessly without having knowledge of volatility and liquidity. 

Control over your emotions is a prerequisite skill if you are looking to become a day trader. Many day traders are caught under the influence of market sentiments, news, and random opinions by their acquaintances and pick stocks that are not subjected to volatility. The markets settle in one direction once the initial volatility subsides, and they trade in that direction for the majority of the day.

When it comes to selecting the correct stocks to trade during the day, liquidity is the most crucial intraday trading tip. Once you’ve figured out the market’s direction, you’ll need to figure out when the best time is to enter the market. Liquid stocks have substantial trading volumes, allowing for larger purchases and sales without impacting the price much. 

In intraday trading, market prices are typically highly volatile in the first half-hour of the trading session when orders from the previous day are completed, causing market volatility. In addition, because there aren’t as many buyers as there are sellers, less liquid stocks don’t allow traders to buy and sell larger quantities. Without volatility in the share prices, you cannot gain the considerable profit you would look for in day trading.

Get familiar with trading software and analytical tools

After choosing the broker and switching to a live account from a demo account, you need to get familiar with the trading platform, whether MetaTrader or the broker’s own trading software. Aside from understanding when to enter the market, knowing when not to enter the market is equally important. 

The wide range of technical indicators for day trading can include Bollinger Bands, moving averages, momentum oscillators and Relative Strength Index (RSI). There are several entry and exit strategies also that you can use as a day trader. These strategies play an essential role in the intraday trading journey. This is because if you take a position in volatile markets and the market trend eventually settles in the opposite direction of your choice, you risk losing money.

There are various trading tools available for the technical analysis on the trading platform; use them to identify the entry and exit points during the day trading. Then finally, select the technical indicators that suit you. You may also hit your stop loss owing to volatility, even if markets are not moving in the opposite way. While in an uptrend, you can trade strong stocks and during the downtrend, focus on weak stocks to avoid potential losses. 

Various entry and exit strategies are current intraday trading strategy, uptrend and downtrend trading strategy, accumulate regular profits and pullback trading strategy. Because of these variables, you should avoid trading intraday during periods of high volatility. For example, in a volatile market where the market’s direction is unclear, you should avoid trading.

Be aware of the best time to trade

The chances to succeed in day trading rises when you pay extra attention at the best time throughout the trading day. Typically the best time to look at the market is first to two hours after the market is open as there would be a clear impact of the previous trading day in these two hours. In addition, the probability of shares being volatile is highest at this time. 

On the other hand, the last hour before the market closes is also the best time to look at the market. These are the best time to trade for profitability as they offer the biggest price moves and immense profit potential. To make the most money, it is essential to consider these periods. As a day trader, you have to look for every opportunity to capitalise. 

But volatility comes with various risks. So always be aware of the negative market trends also to avoid losses.

Bottom Line 

Day trading has gained mainstream adoption in the 21st century because of the rapid internet accessibility and technological advancements. However, as we have already mentioned above that day trading will not make you rich overnight. It can be easily understood that one requires appropriate skills and knowledge to become a successful day trader.

It takes time according to the adapting capability of the individual. It’s up to you how fast you can adapt to the market conditions and signals to choose the right day trading stocks at the right time.  

If you are looking for a broker suitable for day trading, you may consider ABinvesting. 

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