Day Trading Basics

While we don’t suggest anyone start day trading without any knowledge of the markets, everyone has to start someplace.  We actually get inquiries from people almost weekly asking about price action day trading, even though they have never traded in any form or fashion in the past.  For this reason, we felt it was worth discussing some day trading basics for the completely new trader.  If you have never traded before, or if you are not sure as to what day trading really entails, then this post or article will be for you.  Even if you have previous experience as an investor, there will still be some interesting points in this article that might be beneficial for you if you have ever considered becoming a day trader, so don’t write off the article as being for complete newbies only.  While the article will be written with the uneducated and uninformed traders in mind first and foremost, it will have some valuable information that most anyone interested in becoming a day trader might find informing.

Day Trading Basics

Day Trading Basics

The first point we want to make is that day trading is difficult at best and at no time should anyone that has never traded even consider day trading a live account with real money.  Even if you have been a long term investor and made a lot of money investing in stocks, bonds or some other investment market, that experience will not translate to success while day trading that same market.  Investing has the advantage of time, so short term swings that move against you do not hurt you significantly.  However, even a short term move against a day trader can have devastating effects on their account.  If you are trading leveraged accounts such as the futures markets that we trade, those short term moves can be extremely costly, and the losses can add up very quickly.  Almost all futures brokers now offer an opportunity to open a free simulator account, so if you want to try your hand at day trading futures using any of our strategies, then the only way we recommend that you do that is by opening a simulation account with the broker of your choice.  Most importantly, remember that if you can not make money on the simulator, you certainly will not make money day trading a live account.

In a nutshell, day trading is the process of buying and selling a market all within the same day, and many times, multiple times during the same day.  When day trading, your goal is to be flat the market, or in simpler terms, your goal is to have no open trades by the close of the market.  You may buy or sell, but by the close of that day’s market, you will go home without having any open positions in your account.  While there are pros and cons to this strategy, the most important thing is that you can not be affected by market moving news that occurs during the times that the markets are closed.  This is the very thing that gave futures a bad name in the early days of futures trading.  There were often news events that would occur while the markets were closed, and when the markets opened again, the reaction to this news is that prices would gap excessively in one direction or the other, thus creating huge profits or huge losses to those that were holding positions.  For the normal person, these large gaps are almost always against your position, so very few retail traders ever profit from them, and most lose more money than they expected to lose.

Here is an excerpt from an article we found at that discusses day trading basics.

First, let’s be clear about what day trading isn’t. It’s not investing, which is the process of buying a stake in an asset that will hopefully build a profit over the long term. How long is subjective, but investors generally hold assets for years, even decades. And they’re usually concerned with the businesses they invest in. They look for companies that make solid profits, pay off debts in a timely manner, have a strong pipeline of products and avoid litigation.

Day trading, on the other hand, involves buying and selling securities within the same day. Day traders often use borrowed money to take advantage of small price movements in highly liquid stocks or indexes. In general, they follow the same wisdom as longer-term investors: They try to buy low and sell high — they just do it in a very compressed window of time.

It might work something like this. Let’s say a day trader buys 1,000 shares of a certain stock at 10:00 a.m. At 10:15, as the price begins to rise, he or she then sells it. If the stock is up by ½ ($0.50) when he or she sells, the day trader makes $500, minus a commission. If our trader is using Scottrade, a popular online trading platform, the commission for stock transactions can range from $7 to $27, giving our trader a net profit in the range of $493 to $473. Of course, we have to take taxes into consideration. When a person sells an investment he or she has owned for less than a year, the profit is taxed at the person’s personal gains rate, which can be as high as 35 percent. Long-term capital gains, by contrast, aren’t taxed at a higher rate than 20 percent. Clearly, tax planning is an essential element of day trading.

If our trader’s profit seems like small potatoes, remember that day traders don’t make one or two trades a day — they may make 25 to 30. Thus, they multiply their profits by increasing the volume of trades. To limit their risks, day traders generally won’t own stock overnight because prices can change radically from one day to the next. News events and corporate announcements often drive this market volatility, so traders must be available and ready to respond at a moment’s notice. Unlike investors, who may wait until logic prevails or for additional information becomes available, day traders move quickly, making decisions in minutes, even seconds.  You can read the rest of the original article here.

Most people think about stocks when they think about day trading, and while some stocks are much easier to day trade than many other markets, the minimum capital it takes to trade stocks often prohibits many people from trading them.  On the other hand, while learning to trade the futures indexes is a bit more difficult, the benefits far outweigh those of day trading individual stocks. It’s much easier to go short or sell futures than it is stocks, and the cost of entry, including margins is much smaller for day trading the futures indexes.  Because futures are highly leveraged though, you can make or lose a lot of money very quickly, so it’s important that you heed our advice and not trade them live without a lot of training and experience.

If our article on day trading basics has piqued your interest in day trading, and if you would like to learn our price action trading strategies in order to become proficient in day trading, then we encourage you to spend some time on our website reading and watching our videos.  Learning to read a price chart is the most important skill you will need regardless of which market you plan to trade.  Once you learn to read a price chart, you can trade any market or stock and on any time frame like a professional.  Find out more by checking out our price action trading information.  Find out why price action day trading is the only way to make money consistently in today’s markets at