How to Start Day Trading

First, when starting day trading, you need some knowledge of the instrument you are going to trade with. It could be an index, forex or cryptocurrency, for example. Next, you choose a broker, set up your strategy and proof that your strategy works. After that you are pretty much setup. You should start with paper trading to get the hang of it before risking your own money.

Also keep in mind that the majority, some estimates say that even 95% of day traders lose money, so it’s not the best option for everybody. However, some people manage to make a profit in the long term, but most of them can’t. Here is my quick how to get started with day trading. Hopefully it can help you with your journey.

Start with paper trading

It is important to have back-tested trading strategy before risking any of your hard-earned money. If you are completely new to this topic, you can follow these steps for paper trading as well. Paper trading means that you wont be risking your money at all. You are simply training with demo accounts that won’t use actual money and you don’t need to deposit anything.

How to choose the right broker for day trading

When day trading, fees and spreads can take a big chunk of your potential profits, since you do a lot more trades than the usual investor. Again, depending on if you should pick a broker with spreads or flat fees, that depends on how much money you are going to play with. Most of the times, spreads are a better option for smaller accounts.

My favorite broker for trading is TD365 (not sponsored). The reason behind this is that they use fixed spreads, meaning that the spread will always be the same. This is not the case for the majority of brokers, and you can save a lot of money long term trading with smaller spreads.

TD365 also provides free demo accounts, which you can try paper trading with. Of course, the selection of brokers can vary with different countries, and you should do your own research of available options in your country.

What instrument should you day trade

The instrument you should trade on depends on a few things. One of these is the fee or spread you are paying to trade a certain instrument. Most of the times, trading indexes with CFD:s, spreads will be smaller than individual stocks.

One option is also trading Forex, which means trading pairs like USD-EUR. Some countries don’t allow CFD trading at all, and others don’t accept CFD:s losses for tax statements at all, only profits.

Check your country’s laws on different instruments before choosing a broker. One option is trading crypto currencies. There is a lot of movement, or at least has been for the past year or so. A lot of price movement means a lot of trading opportunities for traders, so that might be an option for you as well.

How much money you need to start day trading

You could get started with just a few hundred dollars. However, this varies on the instrument and fees on what you are going to trade on. Another thing to keep in mind is that you might face several losses in a row, so keep your initial capital big enough so you can cover some losses as well. This of course depends too much on your stop losses, but I would say that you could get started with just a few hundred dollars.

How to setup your trading strategy

When setting up your strategy, if you are just getting started, you could find some strategies online and modify them to meet your own needs. Another option is just to learn how different indicators work and use them together, set up a set of rules for when to enter and exit a trade.

When you have your strategy, try paper trading with it and back test it properly. And by saying back test it properly, I don’t mean try to take a few trades and determine that its working. I mean by testing it on different times, rising, and falling prices, for a decent amount of time to get good results from the strategy.

Keep track of your trades

Doesn’t matter if you are paper trading or trading with your own money, you should keep track of the trades you make. Write down the entry point, reason for the entry as well as exit point and reason for the exit.

This helps you to improve your strategy over time and see if there are patterns in losses that you can cut off. For example, you can see that you are making money when taking long positions but losing when shorting.

Take your losses fast and follow your rules

When trading, it is very important to follow the rules and especially the stop losses you have set. It’s not uncommon for traders to lose significant amounts of money, because of “It cannot go any lower” and yet it does. Moments like this can wipe out days, weeks, or even months’ worth of profit.

Day traders don’t fail because their strategies are bad or because they use the wrong indicators. Mostly they fail because they don’t follow their own rules and stop losses. Keep in mind that the majority of traders will fail and only some can actually make a profit doing it.

Internet is full of fake day trading gurus

Be careful of who you take day trading advice from. There are not so many day traders who are actually successful. Good place to continue from here, I would say, is to go check out Trader Toms Youtube channel. I really enjoy the content he creates. It brings a lot of value and will also bring up the dark sides of day trading. He really creates quality content. (not sponsored)

This is not investment or financial advice. Keep in mind that the majority of day traders lose money. Day trading is much more risky than regular investing, since usually the instruments are leveraged. This means that you can lose huge amounts of money in just short periods of time.