How Day Trading Works and Is Supposed to Be Profitable

Day trading is meant to make you profit by having a small edge over the market on short period price movements. Usually, it is buy high and sell low, or the other way, when your indicators and rules tell you so.

When day trading, you have a chance of profiting if the market goes up or down. When there is a lot of movement in the market, that is the best time for a day trader to be present. You can basically trade anything that has some volume and price movement. For example indexes, stocks, cryptos and commodities.

How to make profit with day trading

When day trading, you should be like a casino. You will lose a lot of times, but the trick is to win a little bit more. Like in a roulette, there is black, red, and green. The small chance of hitting green is the casinos edge on the game. Maybe on a set of a hundred spins the casino would lose, but in the long term, the odds are in casinos favor. That’s how you should operate when day trading.

Another alternative is to keep your losses small and take wins bigger. For example, this could mean that if you risk a dollar, you could win two dollars. Therefore, you only need to win 33% of the trades to be even, and everything above that is a profit. Of course, it is not that simple, but this is how it’s supposed to work. Using different indicators and by analyzing the candles, you should get yourself the small edge, that in the long term will leave you on profit.

Do you need indicators to day trade?

Most of the time, traders use indicators to determine when to enter or exit a trade. This, however, isn’t always necessary. There are people who just by looking at the candle sticks can determine when to take trades and in which direction, but I would say most traders use at least some kinds of indicators.

There is a lot a lot of different indicators you can use to analyze the price data. Most common are probably Moving Averages (EMA or SMA), Relative Strength Index (RSI), and Moving Average Convergence Divergence (MACD).

One more tool you could use is volume candles. They show you how much action has been taking place during each candle. However, when creating your own strategy, keep it simple. Even that there is hundreds and hundreds of different indicators, don’t go over your head.

Set yourself rules when trading

As a beginner, you should have a strict set of rules for when to enter a trade and when to exit. You should have set a stop loss before you take the trade, and always follow those rules. A small slip on one trade where you disobey your stop loss and let it fall even more can wipe out days, weeks or even months of work.

There are a lot of different strategies for day trading, but the most important thing is to keep your head cool and obey the strategy, even when facing a loss or multiple losses in a row.

Time frame for day trading

You can trade on almost any time frame. The time frame you trade on will determine how long trades you will be taking.

As a beginner, it might be hard to try trading anything less than an hourly chart, because the price movements will happen so fast you might not get enough time to analyze the data. When moving to daily or weekly charts, it is called swing trading.

Start with paper trading.

If you wish to be a day trader and you have no experience yet, I highly suggest you start with paper trading. Paper trading means you won’t be risking any of your money. Instead, you test out your strategies and find out what time frame works the best for you.

Even though it’s called paper trading, you don’t have to do it on literal paper and pen. There are a lot of different websites that offer demo accounts that you can try to day trade on with, without risking your own money. Don’t rush into trading with real money.

If you are interested, I have a post about how to start day trading as well. You can read it here.

Other day-trading related posts can be found here.

Hopefully this was helpful to you, have a nice day.

This is not financial or investment advice. Keep in mind that some estimates say that 95% of day traders lose money. You can really lose a lot in a short period of time. Always do your research before risking your hard-earned money.