Day trading for a living is something that quite a few people fantasize about.
It seems so simple. You click a mouse button and either buy or sell a stock, futures contract, or currency.
And the next thing you know, you’ve made several hundred dollars.
You may even be doing it on a beach or from your yacht.
However, the reality is much different than that, and like any other business, there are some variables that you need to keep in mind.
5 Ways to Make Day Trading Profitable
So, should I try day trading? Discover the 5 most important things to keep in mind to make day trading profitable.
1. Keep Trading Costs and Brokerage Fees Low
Day trading is when you constantly buy and sell financial instruments like stocks, options, and futures on the same day.
Each time you buy or sell, you are required to pay a certain trading fee. Although trading costs are getting lower and lower in recent years, you still can’t underestimate them. Failing to keep track of your trading fees means significantly lower profits.
That is why, before getting involved in day trading, you should do your research and find the brokerage company with the most competitive rates. Making the most of the trading costs reduction means higher profits in the long term, as well as flexibility when trading.
Related: Best Online Brokers for Buying and Selling Stocks
2. Never Stop Learning
Day trading is one of the most demanding jobs as it requires a wide set of skills and the willingness for continuous self-improvement. In the dynamic world of today’s financial markets, profit opportunities are usually short-lived and constantly-changing.
This means that in order for a day trader to be successful, he should focus on improving his skills of finding and exploiting new patterns and trading opportunities on a daily basis.
Day trading courses are a good starting point for beginners. However, day trading success does not come overnight. Nor will it come if you see that the “Trader A” has earned a hefty sum in X hours and try to copy his exact strategy in the next trading day.
Investing an hour or two per day in quantitative skills development or coding will likely make a massive difference in the long term.
Day trading today is not only related to news interpretation and technical analysis.
In fact, it is becoming a very complex field. Day trading includes additional skills and competencies, related to the development of short-term trading strategies and the ability to benefit from increased volatility levels via automated trading solutions.
3. Maintain a Positive Mindset
The nature of the day trading process requires you to continuously maintain a positive mindset. Otherwise, you risk letting your emotions take control of you and end up in a spiral of losing trades.
The most successful day traders are those who are not bothered by the fact that they have lost a few bucks here and there. They realize that losses are part of the whole process and the path toward building a successfully-performing day trading strategy is a continuous one.
Day trading requires a continuous and cautious approach that does not involve complaining about losses or negatively-performing trades.
Biases and emotions do not bring positives, especially in the fast-paced world of day trading. That is why, if you want to become a successful day trader, the most important thing is to turn your focus toward the greater goal and not let momentum distract you.
The truth about day trading is that even the most successful and well-tailored trading strategies are useless if the trader does not handle the process with proper discipline.
You should never try day trading without first educating yourself on the topic. Once you have a strategy, make sure to stick to it and meet all of your criteria. Or to say it in the words of experienced traders – “Plan the trade and trade the plan.”
4. Exercise Careful Risk Management
Day traders flourish when trading instruments with high volatility. However, this means that the associated risk is also quite high.
Volatile instruments tend to experience price swings in a matter of seconds which can instantaneously wipe out one’s portfolio if there is no appropriate risk management strategy in place.
Buy Liquid Instruments
In order to take advantage of high volatility and prevent your portfolio from experiencing huge losses, you should bear in mind one thing:
Successful day traders share one main characteristic – they trade volatile stocks that are highly liquid.
Liquid instruments provide traders with rooms for errors and the chance to be flexible – if they notice that a particular trade is not going to go in the right direction, they can quickly close it, without altering the price of the instrument, and minimize losses.
If you want to start day trading, bear in mind that many professional money managers and advisors stay away from it as they believe the risk does not justify the profit potential.
This should tell you a lot about the importance of having a well-designed risk management strategy.
Set an Exit Goal
The basis for building a good strategy is to gain an in-depth understanding of the way markets work and set your exit goal.
Always start small and aim for short-term rewards. Spend enough time for research and screening. Make sure to close positions as often as needed and when the first signs of a potential downfall occur.
Remember that your goal is to register a large number of small profits. Keep tabs on the trading costs and be willing to exit once you meet your pre-defined criteria. Do not break your own rules and make sure to remain calm when markets do not go in the direction you desire.
The most important thing about day trading is to use only risk capital that you are comfortable or at least not so bothered to lose.
5. Get a System (and Automate It, If You Can)
Should I try day trading via trade automation? Well, a day trader’s best friend nowadays is the trade automation software. From more accurate data analysis through pattern recognition and automated trade execution to rebalancing and portfolio optimization – all of these things are part of the advantages that automated software brings to the table.
In order to become more informed and precise at your trading decisions, make sure to find a suitable stock screener to help you spot potentially profitable trades. By running just two daily scans, once before the opening bell and once after the market closes, you can gather enough information about movers and potentially profitable trade opportunities to later capitalize on.
But automation helps day traders in another very essential way as well. Trading simulators are the proven best option for those who want to taste the waters with day trading.
By providing the opportunity to day trade with paper money in a real market environment, but with no associated financial risk, trading simulators are always a focal point for everyone who wonders whether day trading is the way to go.
Should I Try Day Trading At All?
Day trading can be a viable way to make money from home. Make sure to keep the risk low by spending enough time researching and trading with paper money, before jumping in.
The learning process and day trading itself takes time. To become a successful day trader, you should:
- Focus on self-improvement,
- Gain continuous knowledge, and
- Practice day trading with a stock trading simulator.
Spotting potential profit opportunities, manual trades execution, and continuous trade monitoring require complete dedication and self-discipline. Do you have what it takes?