10 Strategic Tips for Beginning Day Trading

Updated: December 19, 2019

Learn Day Trading Strategies

Day trading (also known as intraday trading or short-term trading) is one of the most misunderstood trading techniques. The fast pace of moving investment positions within a single trading day generates a perception that day trading is riskier or more volatile than other types of trading. Let's put this to the test with an overview of some helpful strategic trading tips trading strategies for beginners and the experienced alike, as well as by discussing how day trading really works.

These day trading tips could help traders of all experience levels develop daily trading strategies for their portfolios.

10 Day Trading Tips for Beginners

1. Find favorable entry points

   

   Look for scenarios where supply and demand are drastically out of balance and use these as entry points. The financial markets are like anything else in life: if supply is near exhaustion and there are still willing buyers, price is about to go higher. If there is excess supply and no willing buyers, price will go down. At Trading Academy, we teach students how to identify these potential turning points on a price chart by studying historical examples.

2. Set day trading price targets

   

   All traders, no matter their expertise level should set day trading price targets before entering the market. If buying a long position, traders should decide in advance how much profit is acceptable as well as a stop-loss level if the trade turns against them. Then, stick by their decisions. This limits potential loss and keeps traders from being overly greedy if price spikes to an untenable level. Exception: in a strong market, it’s acceptable to set a new profit goal and stop-loss level once the initial target is achieved.

3. Insist on a good risk-reward ratio

   

   One of the most important lessons in stock trading for beginners is to understand a proper risk-reward ratio. Beginner traders should stick to a strict rule of risking only $1 to potentially make $3, or a risk-reward ratio of at least 1:3. As the Trading Academy instructors point out, proper stop loss utilization, allows traders to manage risk.

4. Be patient

   

   Day trading requires patience, so be a patient trader. Paradoxical though it may seem, successful day traders often don't trade every day or all day. They may have a certain time they feel is the best time to day trade for them; and during those times, they may be at their computer and in the market, but if they don’t see any opportunities that meet their criteria they will not execute a trade that day. That’s a lot better than going against your own best judgment out of an impatient desire to just do something. Plan your trades, then trade your plan.

5. Be disciplined

   

   Discipline is integral to strive for consistent trading results. Beginners need to set a trading plan and stick to it. At Trading Academy, students execute live stock trades in the market under the guidance of an instructor with the goal of improving decision making skills. Impulsive behavior can be a trader’s worst enemy. Greed can keep traders in a position for too long and fear can cause them to bail out too soon.

6. Execute trades confidentiality

   

   Don’t be afraid to push the order button and execute trades. Novice day traders often face paralysis by analysis because they get wrapped up in watching the trading chart candles and the Level 2 columns on their screen; this prevents them from acting quickly when opportunity presents itself. For disciplined traders who work their plan, actually placing the order should be automatic. If they’re wrong, their stops should get them out without major damage.

7. Budget wisely

   

   Don’t day trade with money that is needed or set aside to meet a goal. Knowledgeable traders have a small bucket of short-term risk capital and a larger bucket of investment capital they’re saving for retirement or another long-term goal. The larger bucket tends to be invested more conservatively and in longer-duration positions.

8. Balance capital invested per trade

   

   Position size refers to how much capital is allotted to a transaction in the stock market. A simple example would be, if a trader wanted to invest $100, they could buy 10 units of a stock that was priced at $10 (10 units x $10 = $100).

   It is important to never risk too much capital on one trade. Position size should be a set as a percentage of the total day trading budget (which might be anywhere from 2% to 10%, depending on the budget). Allowing the position size to exceed the predetermined percentage may result in missing out on an even better opportunity in the market due to all available funds being tied up in one or two trades. Plus, the risk of loss is potentially greater as the size of the position increases.

9. Explore options beyond trading stocks

   

   Trading stocks is where many day traders start, but that doesn’t mean day trading is limited to just trading stocks. Forex, futures and options are three asset classes that display volatility and liquidity just like stocks, making them ideal for day trading. And often, one of them could present appealing opportunities on a day when the stock market is going nowhere.

10. Learn from experience

    

    Once the trade analysis is done and the trade is placed, even if it goes against them traders shouldn’t second-guess themselves or beat themselves up for mistakes. All day traders experience losses, so it’s ok when the occasional trade doesn’t pan out, especially for a beginning day trader. When a loss occurs, traders should evaluate the trade to confirm that they followed their own established day trading rules and that they didn’t get in or out at the wrong time. Journal the trade, learn from any mistakes that were made and move on to the next trade, building on that experience.

Day Trading FAQ

What Is Day Trading?

By the strictest definition, a day trade is a position that is entered and exited in a single day. Day trading refers to market positions that are held for only a short time. Typically, the trader opens and closes a position the same day but positions can be held for a longer period of time as well.

The position of an investor engaged in daily trading can be either long (buying outright) or short (borrowing shares, then offering to sell at a certain price). A day trader or intraday trader is looking to take advantage of volatility during the trading day, reducing overnight risk caused by events (such as a bad earnings surprise) that might happen after the markets are closed.

How Much Risk Is Involved in Day Trading?

According to Trading Academy, the fact that day trading positions are processed in a single day minimizes risk potential.

“One of the best ways to control risk is limiting the length of the trade. The longer you are in a position, the greater the likelihood is that price could move against you. By day trading, you eliminate overnight and weekend risk, especially when you trade markets that close, like stocks.” – Brandon Wendell, CMT

Because day traders don’t hold their positions overnight, they avoid the possibility of a surprise in an overseas market, unfavorable economic news or an earnings report that comes out after the markets are closed. Even though after hours trading is available for many securities, the market is thin and it’s likely the position will gap down (open at a dramatically lower price) the next day after a negative overnight event.

In addition, day trading tends to reduce, not increase, market volatility. Day traders are typically looking for their opportunities in small price movements up or down. Their daily trades provide liquidity which keeps markets running smoothly, as compared to lightly traded markets that are subject to dramatic price swings.

And no, day trading is not a way to get rich overnight. Done properly, it is a conservative investing approach that is utilized by many institutions as well as well-educated individuals who choose to do it full time. It’s their choice whether to use leverage (buying securities with a brokerage line of credit) which can magnify profits, but also increase potential losses.

Day trading got a bad reputation in the 1990s when many beginners began to day trade, jumping onto the new online trading platforms without applying tested stock trading strategies. They thought they could go to work in their pajamas and make a fortune in stock trades with very little knowledge or effort. This proved not to be the case.

Yet day trading is not all that complicated once you learn a rules-based strategy for anticipating market moves, such as that taught at Trading Academy.

What Do You Need to Start Day Trading?

To be a day trader, you are going to need some equipment and services. While many people think a daily trading setup requires top of the line equipment and a hefty investment of capital, that’s not really the case. Here’s a list of common items that a day trader needs:

• Technology

  – Contrary to popular belief, traders do not need a supercharged computer with a dozen monitors to trade in the markets. Nearly any off the shelf desktop or laptop computer will suffice. Check with your broker for computer requirements to make sure you have enough power to use their software.

• Internet connection

  – Speed is critical to get orders processed in a timely manner for a fast-moving market. Most cable and even satellite providers will offer enough bandwidth to connect to the exchanges. Typical packages of 20mbps are plenty. Some traders even use their mobile phone connections at 5 to 20mbps, but that is not recommended. The spotty connections mobile phones offer can cause delays in transactions which could result in unexpected losses.

• Direct Access Trading Brokerage

  – Traders should be careful here. Many online brokers offer their services but route orders through market makers who can delay processing and cost extra money. Direct Access Trading Brokerages route orders to the exchanges faster and without middlemen who slow the process. These brokers usually offer better commission structures and more powerful software. Be sure you are comfortable with their software and that it is compatible with your computer before you sign on with them.

• Trading Platform

  – On the topic of the brokerage software, be sure the trading platform is user friendly. Mainly, is it easy to use to perform trade analysis and place orders properly and quickly? Do they offer a web-based version, or will it require downloaded software? Both are fine, but the downloaded version may offer more features. Also, check to see if there is a mobile version that can be used on the go to check in on and adjust positions if necessary.

• Skills

  – Many people are proponents of getting an education. The problem is that education alone is not enough. Though having knowledge of how the markets work and how to read price is necessary and will offer an advantage, skill-building is also required to obtain the results you seek.
  
  Building a skill requires practice and experience; but trying to obtain trading skill without guidance can be a lengthy, often frustrating process. For many, practicing and learning from the experience of a mentor is the best way to hone skill and learn strategies for trading and investing that minimize risk. Even the greats like Warren Buffett and Paul Tudor Jones had mentors. Mr. Buffett worked under Benjamin Graham and Mr. Jones mentored under Eli Tullis.

Trading Academy's step-by-step core day trading strategy relies on patience and a good understanding of how to analyze risk and reward scenarios on any trade. In addition to the stock (also called equities) markets, Trading Academy offers trader education related to futures, options and currency trading as well as a wealth management track for those who are less active as traders but want to stay on top of their portfolios.

Prospective students generally start with a free introductory class where they can learn more about day trading and other trading topics. The Free Introductory Class is offered on a regular basis at Trading Academy education centers, and online.