Before we dive into our day trading guide you must first understand what day trading is.Day tradingis when a trader buys and sells the same financial instrument on the same day in an attempt to capitalize on short term price fluctuations. This is often seen as being very risky, which it can be if not approached correctly.
As you can imagine, day trading requires extreme discipline. You have to be able to make decisions on a moments notice and be able to handle the reality of losing money. All traders have down days but what separates successful day traders from beginners is the ability to limit losses and know when to call it quits for the day.
Below we will cover the basics of day trading along with some simple strategies that we use everyday to make money in the markets.
1.Get Educated! Learn Day Trading Terminology & Day Trading Concepts
3.Adopt a Trading Strategy and Write your Trading Plan and PRACTICE
5.Hitting the Daily Goal & Profit Loss Ratios
6.Maintain Your Accuracy By Being Disciplined
You need to understand basic day trading terminology & concepts to build your foundation. You can follow me onYoutubeto get free education! Join the community of thousands of followers on YouTube and begin studying the free content we post on a daily basis. This is the beginning of your education. You need to study the markets, analyze charts, and learn the strategies professional traders are using every day.
A day trader is two things, a hunter of volatility and a manager of risk. The act of day trading is simply buying shares of a stock with the intention of selling those shares for a profit within minutes or hours. In order to profit in such a short window of time day traders will typically look for volatile stocks.
This often means trading shares of companies that have just releasedbreaking news, reported earnings, or have another fundamental catalyst that is resulting in above average retail interest. The type of stocks a day trader will focus on are typically much different from what a long term investor would look for. Day traders acknowledge the high levels of risk associated with trading volatile markets and they mitigate those risks by holding positions for very short periods of time.
Trading on margin is when you trade with borrowed money. For example, a day trader with a $25k trading account may use margin (buying power is 4x the cash balance) and trade as if he had $100k. This is considered leveraging your account.
By aggressively trading on margin he can produce 5% daily profits on the 100k buying power he will grow their 25k cash at the rate of 20% per day. The risk of course is that he will make a mistake that will cost him everything. Unfortunately, this is the fate of 9 out of 10 traders. The cause of these career ending mistakes is a failure to manage risk.
Trading with cash is an option, but because it requires 3 days for each trade to settle most traders will trade with a margin account but choose not to use leverage. This is a risk management technique.
Imagine a trader who has just taken 9 successful trades. In each trade there was a $50 risk and $100 profit potential. This means each trade had the potential to double the risk which is a great 2:1 profit loss ratio.
The first 9 successful trades produce $900 in profit. On the 10th trade, when the position is down $50, instead of except the loss the untrained trader purchases more shares at a lower price to reduce his cost basis. Once he is down $100, he continues to hold and is unsure of whether to hold or sell. The trader finally takes the loss when he is down $1,000.
This is an example of a trader who has a 90% success rate but is still a losing trader because he failed to manage his risk. I cant tell you how many times Ive seen this happen. Its more common than youd think. So many beginners fall into this habit of having many small winners then letting one huge loss wipe out all their progress.
Its a demoralizing experience, and its one that Im very familiar with! We will discuss in detail how to identify stocks and find good trade opportunities, but first we will focus on developing your understanding of risk management.
Over my years as a trader and as a trading coach I have worked with thousands of students. The majority of those students experienced a devastating loss at some point due to an avoidable mistake.
Its easy to understand how a trader can fall into the position of a margin call (a debt to your broker). The money to trade on margin is easily available and the allure of quick profits can lead both new and seasoned traders to ignore commonly accepted rules of risk management.
The 10% of traders who consistently profit from the market share one common skill. They cap their losses. They accept that each trade has a pre-determined level of risk and the adhere to the rules they set for that trade. This is part of a well defined trading strategy.
Its common for an untrained trader to adjust their risk parameters mid-trade to accommodate a losing position. If for instance they said the stop is $50, when they are down $60 they said theyll hold just a few more minutes. Before you know it, they are looking at an $80-100 loss and they are wondering how it happened.
I made $94,119.54 Day Trading in just 3 months
The Momentum and Reversal trading strategies are the 1 and 2 best trading strategies out there. These two day trading strategies are being used by thousands of our students who have participated in the Warrior Trading Day Trading Courses. In fact, in a survey of 100 of these students, over 80% are now trading profitably thanks to these strategies (click here for survey details) These strategies can be the basis for your $200/day trading plan.
We teach all the details of these strategies in our day trading course, but we also cover them in summary in several blog posts and in chat room Q&A sessions. You can read more about myMomentum Day Trading Strategyand myReversal Day Trading Strategy.
In short, both of these strategies are going to give you the framework for what type of stocks to trade, what time of day to trade, how to find stocks to trade, how to set your stop loss to have a max risk, and how to find your entry based on traditional chart patterns including Bull Flags and Rubber Band Snap Backs.
Most of our students adopt either my Momentum or Reversal Day Trading Strategies. Once you choose the one that is a good match for your skill level, your risk management tolerance, and the time of day you plan to trade, you are ready to get started. Students in ourDay Trading Coursecan download our written trading plan documents and Im able to actually oversee them while they are trading.
Make a plan to trade this strategy in aSimulated Trading accountfor 1 month to test your skills. Your objects will be to achieve a percentage of success (or accuracy) of at least 60%. You also must maintain a profit loss ratio of at least 1:1 (winners are equal size on average as losers). If you can achieve these statistics, then you are positioned well to trade live. During the 1 month of practice, try to take 6 trades per day.
I admit that its extremely difficult to achieve the level of composure to sell when you hit your max loss on a trade. Nobody wants to lose, but the best traders are great losers. They accept their losses with grace and move on to the next trade.
They never allow one trade the ability to destroy their account or their career. I personally focus on accepting small losses, and not letting them get me frustrated. Learning this characteristic will keep them in business as a day trader for a long time.
Your most important objective will be to follow your Max Loss rules so you never have a loss that exceeds a predetermined amount. The most important skill you need to learn is to cap your losses.
Learning how to scale in and scale out of your day trades is a critical still every trader must develop. When I have winning trades, I scale out of the positions to take profits and adjust stops to break even as quickly as possible. I never hold a position that has achieved my profit target and hope for a bigger winner.
The reason is because all too often the price can drop and you will end up giving up that profit. Instead, as soon as Ive reached my first profit target (if Im risking $100, then as soon as Im up $100), Ill sell 1/2 my position and set my stop at breakeven. This method of scaling out ensures small profits on all trades that move in your favor, giving you a better percentage of success.
Lets say you take 6 trades/day with a $100 max loss and $100 profit targets. If you lose on 2 and you win on 4 (about 65% success rate), and down $200 on losers, and up $400 on winners, giving you a net profit of $200/day. Ideally we want students to be risking $100, to make $200.
That would give you a 2:1 profit loss ratio. Again, with 6 trades and a 2:1 profit loss ratio, your 2 losers would still be down $200, but your 4 winners would be $800 in profits, giving you a $600 net profit. With the same percentage of success, if you can increase your profit loss ratio you will make a lot more money!
Once youve hit your daily goal, decrease your position sizing so you dont lose the goal. Finish the day green, and do it again tomorrow.
As long as you can maintain accuracy of at least 60%, and maintain profit loss ratios of at least 1:1, you can be a profitable trader. Over time accuracy will improve and you will find yourself hitting winners right out of the gates. Some days you may even trade at 100% success with winners on all 6 trades you take.
If you plan to succeed, you must follow your trading plan. That means ONLY taking trades that fall into your strategy. Sometimes beginner traders start to gain confidence and then venture outside the strategy that works the best. This causes their accuracy to drop and profit loss ratios to go negative.
Focus on short term goals! You goal today is to take 6 trades, with 60%+ accuracy and 1:1 profit loss ratios. Rinse and repeat. Thats the ticket to success. Before you know it you will have 3-4 months of consistent trading under your belt.
I was able to make over $94k in just three months by day trading my favorites setups. Huffington Post even wrote an article about my success which you can read in the following link!
For most students, once his or her accuracy has improved the next step is increasing positions sizes to maximize profits. If youve been trading at 65% success with 1:1 or 2:1 profit loss ratios for at least a couple of months you should be starting to feel pretty confident. Now its time to increase your position sizes. Since youve been working with a $100 max loss, youve probably rarely exceeded 2000 shares.
Now if we increase your max loss to $150, you can start to venture into larger size positions, and bigger daily goals. Remember that your daily goal is 2x your max loss per trade. So if your max loss is $100, your goal daily is $200. Max loss is $150, daily goal is $300. Personally, my max loss is $500 and my daily goal is $1000.
I know some students who have a max loss as high as $5k/day. Even though its hard to imagine right now, thats the potential of a strategy that is scalable! All the strategies we teach are scalable so whether you trade with a $5k account, a $50k account, or a $500k account, these strategies can be utilized.
Now that Ive taught you my 7 steps to trading success you are probably wondering whats next! I would encourage you to join a live webinar with me so you can learn even more about my trading strategies. You canclick here to join my next webinar, and make sure in the meantime you keep watching on YouTube! I put out tons of free content to help beginner traders getting started.
If you are ready to jump in with both feet, were ready to teach! You can join our Chat Room, Trading Courses, or start practicing your skills in our real-time market trading simulator!
Our Mission is to help 50,000 traders on their journey to success over the next three years. Become our next student today!
Before I started trading, I would make $1000 in 2 weeks…Now after taking the warrior trading course, I can make that in a single day, at 26, I now own my own house and I am fully independent, thank you warrior trading for everything you have done for me, my future looks brighter than ever!
I had a job I didnt really like and I was forced to live five thousand miles away from my home Country…After joining Warrior Trading, I can trade from anywhere and my income is more than doubled. Thanks to this community, it now feels like Ive been given the keys to absolute freedom.
After 3 years of trading as a student my portfolio has net more than $230k…For year 2019, in less than 6 months Ive net more than 140k. With Warrior Tradings mentorship and my investment knowledge prior to coming on-board, I developed my own short term swing trading strategy.
On January 24th 2019 I started with $690 in my March I made $4,433.89 and by April, my account was up 1,000%. Id made $6,900 in 42 trading days.
I think trading is the only place in life where I can say I am totally responsible for my outcomes…Thats huge in a world where previously waiting on someone else to make decisions about my income felt like a prison. I now have full autonomy.
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