So, you’re curious about day trading? Want to know how to become a day trader? It’s easier said than done, so let’s have a look at what it takes to walk that path.
What is day trading?
A day trader is one who actively buys and sells securities several times a day, but without carrying any open positions to the following day. All buy/sell positions – both long and short – taken during a trading day are concluded on the same day, prior to market close. The goal is to exploit the volatility, or price action, caused by short-term supply and demand mismatch.
Successful day trading requires extensive knowledge and experience. Day traders employ a variety of approaches to make trading decisions. Some traders use algorithms for technical analysis to calculate probabilities, while others rely on instinct.
Mindset and discipline
Let’s get the obvious out of the way – it’s not for everyone. The concept of trading from the comfort of your home and just watching the gains accumulate is rather appealing. However, the reality is that it requires considerable commitment; the total opposite of easy money.
The dedication and discipline required to become a successful day trader could almost be compared to that of a samurai. A working day is measured by completion of operations, not hours. Risk is present in every trade. Finally, the commitment to continuous self-improvement and the daily obligations cannot be overlooked. How to become a day trader? Be a as disciplined and focused as a warrior.
Market knowledge and analysis
It’s often the smaller, obvious details that get missed. It is absolutely fundamental to have a solid knowledge of how the market operates. From trading hours to bank holidays and the influence of daily headlines. To be a day trader means one must keep an eye on all events and be familiar with multiple industries.
Understanding trading products and requirements
In addition to understanding the market, it is equally important to know how to trade financial instruments and what market derivatives are. Once again, the question pops up – how to become a day trader? With a lot of work and dedication. Here are some of the most commonly used derivatives: CFDs, futures, options, etc. Each of these has pros and cons and operate with specific requirements. A couple of key aspects to consider are liquidity and volume. Why? Given the quick timing of the operations, these factors are what might affect your profit per trade.
Setting up your strategy
No one starts off knowing how to be a day trader and what to look out for. Experience will play a big part in the preparation of a suitable strategy. Rookies may take their first steps by using two strategies to complement each other. With time, the adoption of more complex strategies may result in greater profits.
As a rule of thumb, it is a good idea to start small and scale up. As you test a new strategy, you may want to test it with smaller amounts, and then increase it if it proves profitable. Even though the operations are short-term, it’s important to keep an eye on the horizon and not lose track of the bigger picture.
The bigger picture – we know how to become a day trader
Ultimately, there is no magic formula answers how to become a great day trader. If there were, everyone would be using it. It boils down to how much time and effort is put into evolving as a trader, developing and fine-tuning a plan that works for you. This plan will depend on the combination of your experience, knowledge, available time and capital.
The world of trading never sits still and is constantly evolving. It is important to continuously monitor results and adapt, or even scrap a strategy altogether, in order to successfully become a day trader in the long-term.