How to Day Trade for a Living: 8 Tips for Day Trading Success
Think you have what it takes to become a full-time day trader? While many investors have the vision of being their own boss and watching their bank accounts fill out, not all day traders actually make a real success of it.
In reality, day trading is pretty high-risk, and turning quick profits on a day-to-day basis is not always achievable. However, this blog on how to day trade for a living offers a few fool-proof tips to set yourself up for success.
A Day in the Life of a Day Trader
So, what exactly does a day trader do? They buy and sell securities or stocks throughout the course of a business day, based on price fluctuations. Most commonly, day traders focus on foreign exchange securities because of the volatility of this market and the potential to turn profits in a short period of time.
Active traders, on the other hand, hold several positions for several days in a row. While investors hold several positions for far longer, extended periods. The aim of a day trader is to use as much leverage as possible to increase their trade exposure throughout the day.
How to Day Trade For a Living: 8 Pro Tips For a Successful Start
If you aim to make a decent income from day trading, here are a few must-know tips in order to set yourself up correctly. It’s important to be realistic — finding true success with day trading does not happen on a whim. It takes preparation:
1. Thoroughly Assess Your Skillset
The characteristics of a successful day trader are quite particular. You need to possess a number of key skills, traits, and have a good knowledge of the ins and outs of trading. Day trading also takes commitment to a certain lifestyle, which includes long working hours.
You need to be realistic about whether you have the mathematical skills and financial acumen to be a trader. You also need to have a good understanding of your own behavior, as well as the behavioral psychology of others. Are you cut out to be an entrepreneur? Do you have the commitment to work long days, without guidance from those around you?
Ultimately, you’ll need to devote your time to self-learning, be prepared to take financial risks, accept your losses, and have the strength to persevere.
2. Ensure You Have Cushion of Capital
The reality of day trading is that your income stream is consistently inconsistent. It is unlikely that you will be able to make a profit on a daily basis, and you should expect to make certain losses throughout your day trading career. Some of these losses will be short-lived, others may be extended.
This means that you’ll need enough startup capital to ensure all your bases are covered, in order to handle the risks associated with day trading. In other words, you need a sufficient cushion of capital to soften the blow of certain losses.
Ideally, you should begin your trading career with at least $100,000. If you’re a true novice, you can begin with a smaller amount depending on your trading strategy. Bear in mind that active day traders are generally required to maintain a balance of $10,000 in their trading account.
3. Have a Good Understanding of Trading Markets
Before you dive into a full-time day trading career, you need to have a decent knowledge of how trading markets function. This is the foundation you have to work off of.
This knowledge base includes simple details, such as trading hours, and holidays. It also includes an understanding of tradable instruments, the impact of news events, and more. The broader your knowledge base, the better.
4. Have a Good Understanding of Securities
Do you know the difference between stocks, options, futures, mutual funds, and EFTs? If so, it’s important to understand how each security trades, and the key difference between them.
Without a decent knowledge of these securities, how will you establish a trading strategy? Knowledge is power.
5. Establish a Fool-Proof Trading Strategy
If you’re just starting out as a trader, it’s wise to establish two trading strategies that will stand you in good stead. This is your starting point. One strategy can be implemented, while the other works as a backup in case of strategy failure.
As your day trading career and experience progresses, you can build up your repertoire of strategies. They can also become more complex as you gain experience.
Ultimately, you should be prepared for both success and failure. Day trading is a dynamic and volatile environment. You should always watch each trading strategy like a hawk. Take note of what works, what doesn’t, and customize your next strategy to suit.
6. Prioritize Money Management
Money management is at the heart of your success as a day trader. You need to ensure you always have a decent amount of trading capital, no matter how many trades have been profitable or have failed. Money management also helps you to sufficiently allocate capital to margin money requirements when trading futures or options.
Keeping tabs on your money management will help you to address all challenges in day trading while estimating the profits you’re going to make. This way, you can practice and structure your trades, according to your money management strategy.
7. Have a Good Knowledge of Brokerage Charges
Due to the high number of transactions you make as a day trader, you are likely to incur high brokerage charges. It’s important to do your research on brokerage plans, and which will suit you best.
If you’re starting out small, with limited transactions, then a per-trade brokerage plan is best. However, as your day trading transactions increase, you want to consider a staggered plan or fixed brokerage plan. Both of these plans are suited to higher-volume trading, with a lower fixed cost.
Look for a brokerage plan that also offers all the trading utilities you need. This ranges from up-to-date trading platforms, trading software, research tools, trading alerts, historical data tracking, and more.
8. Start By Trading Small
There’s much to be said about going gung-ho on your first day trading experience. In short, you shouldn’t. Start out with a small, relatively secure trade strategy, then build from there.
If you’re trying out a new trade strategy, do so with a smaller amount of money in order to minimize your losses. Once you have a taste of success and experience, you can begin to implement bolder moves!
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