While the above makes day trading sound relatively straightforward, the truth of the matter is that it has a variety of pros and cons that means it is not for everyone. Take a look at the following list to determine if there isn’t another type of trading that is better suited to your goals.
Large profit margins: For those who do it right, day trading can be a very profitable career path with profits that are greater and more reliable than just about any other type of securities trading.
Work for yourself: Many of the most successful day traders are self-employed which means they don’t have to answer to anyone, they can make their own hours and set their own profit goals.
Always exciting: Dealing with the shortest market timeframes means that day traders typically see more action than any other type of security trader. You will have the opportunity to pit your wits against the market as well as your competition each and every day. Those who are natural thrill seekers will also appreciate the adrenaline rush that comes from rapid-fire trading and pulling a big win from the grip of defeat.
No degree required: As opposed to many other financial jobs, a perfectly successful day trader can be completely self-taught. As long as you are willing to put in the time and energy to learn the skills you need, you can be a success with no degree required. Everything you need to learn can be found, at very little expense, online.
Tax write off: As self-employed individuals, day traders can write off a great deal of their expenses when it comes time to pay taxes. Sophisticated hardware, expensive software, even home office space can all be partly written off by those who work from home.
Commissions can noticeably affect profits: Due to the higher than average number of trades they make in a single day, the commission cost of individual trades can significantly affect your overall profits if you don’t do everything in your power to minimize these costs.
The potential for loss is substantial: Day trading is without a doubt the most difficult of all of the types of securities trading to make a reliable profit in. Most day traders see nothing but losses for a least the first month of their nascent career and if they are not careful these loses can prevent them from ever reaching profit making status. While only trading what you can afford to lose is something that every trader should keep in mind, many new day traders trade with borrowed money in the form of margined trades or capital from loans which can cause them to start out from a significantly indebted position.
High startup costs: Day traders are actively competing against hedge funds, high-frequency traders and other professionals who often have trading capital reserves in the millions. As such, in order to compete it is recommended that you have a trading bankroll that is at least $10,000 at the bare minimum. Additionally, you are going to need to invest upfront in charting software, a trading platform, computer hardware and more. Added to this are the ongoing costs of commissions, live price quotes and other brokerage fees, all of which add up faster than they otherwise would do to the high volume of trades to be made. Finally, many brokerages will not allow you to day trade unless you have proven yourself to be a successful trader on a smaller scale which means there is a time as well as a monetary commitment.
Self-employed: While there are benefits to working for yourself, there are also drawbacks. These include a lack of health insurance, a steady paycheck and corporate infrastructure, just to name a few. This also means that you will need to deal with the isolation that comes from working by yourself with no one around to lend a hand or to make sure you spend your days working instead of browsing social media, you will be completely responsible for your own success. Finally, in order to truly day trade successfully, you need to commit fully from the start which means giving up your steady paycheck to try something far less guaranteed.
Long: If a trader takes a long position that means they purchased a specific stock, option, currency pair etc.
Short: If a trader takes a long position that means they sold a specific stock, option, currency pair etc.
Bear market: If the market is trending downward this is considered a bear market.
Bull market: If the market is trending upward then this is considered a bull market.
Bid price: The bid price is the price that traders are currently buying a given asset for.
Ask price: The ask price is the price that traders are currently selling a given asset for.
Spread: The difference between the ask price and the bid price.
Open: The open price is the price of a given asset at the start of the trading day.
Close: The close price is the price of a given asset at the end of a trading day.
Slippage: The difference between the price of a bid or ask when you decide to make a trade and the actual price when you commit to it.
Intraday range: The difference between the high and low of a given asset between different days.
Volume: The number of shares that trade hands in a given day.
Liquidity: This refers to the ease with which a given security can be obtained. In general, the greater the liquidity, the lower the price.
Volatility: The degree to which the price of a security is likely to change over a specific period of time.
How to find securities to trade
Pre-market movers: While pre-market prices are subject to change once the market opens, they are a great place to start. The first thing you are going to want to look for is a high degree of volume, not just for the day, but for the last 30 days.
Check social media: Social media is often a great place to get a sense of impending news events before they happen. This, in turn will allow you to determine how the market is going to move before it has a chance to get going and let you get in on the ground floor of potential incoming changes.
Earnings calendar: A surefire way to see an increase in volatility is when earnings are reported. You are never going to want to jump on an assumed trend before they are released but shortly thereafter the trade gates will be thrown wide open.