Trading in the stock or financial market was once limited to professionals working for large financial institutions. However, the trading landscape has drastically changed with the advent of online trading platforms and real-time news availability. These advancements have democratized trading, making it accessible to retail investors.
Websites like TradingGuide.co.uk have simplified the process with user-friendly trading resources, leading many individuals to trade like professionals and try to turn their skills into cash.
But maybe you are wondering, is it possible to make a living day trading? Yes, day trading, if done correctly, can be a lucrative career. However, it can also be challenging, especially for beginners without a well-planned strategy. Even seasoned day traders have their worst days, experiencing a streak of losses. Still, what exactly is day trading, and how does it work?
What is Day Trading?
Trading is not investing. Usually, in trading, you focus more on short-term movements in markets. So, it’s a more hands-on kind of thing, but with the availability of advanced tools, it has become much easier for pretty much everyone who wishes to learn the essentials of a successful trader.
In day trading, you buy and sell a security within the same day. It differs from traditional investing; it focuses on exploiting the ups and downs during a trading session. So, you are only exposed to the risk of price movements during that day. It’s prevalent in the stock and foreign exchange (forex) market currencies.
It may sound easy on paper, but it’s a bit tricky in a real sense, as you use various techniques to profit from small market price movements. Successful day traders possess in-depth knowledge of trading and are usually well-funded, and they often take additional risks by utilizing leverage to increase their stakes.
To be successful here, you need to be highly attuned to events that cause short-term market moves. You’ll employ various intraday strategies such as scalping, range trading, news-based trading, and high-frequency trading (HTF) to capitalize on perceived market inefficiencies.
There’s a raging debate surrounding day trading profit potential. Some day traders make a successful living, while others fall victim to scams and misinformation promising quick returns, which explains why many professional money managers and financial advisors shy away.
To be entirely honest, the risks sometimes outweigh the rewards. Those with enough money believe active trading strategies tend to underperform passive index strategies over time, especially considering fees and taxes.
Prerequisites of Professional Day Traders
Profiting from day trading is possible, but success rates are inherently lower due to the risks involved and the need for considerable skill. Luck and timing also play significant roles, as even experienced day traders can face setbacks due to unfortunate circumstances. But if you are looking to get started in day trading, these three prerequisites are essential for your success:
- Marketplace Knowledge and experience
- Sufficient capital,
- A well-defined day trading strategy.
Here are some of the skills that you typically need to succeed:
- Technical analysis skills: Day traders need to be able to read charts and identify patterns to make informed trading decisions.
- Risk management skills: You must control risk and limit losses.
- Discipline: Day trading can be very emotional, and you need to stay disciplined and stick to your trading plan.
- Patience: It is not a get-rich-quick scheme, and it takes time and patience to be successful.
In this kind of trade, you need an edge over the market and adhere to disciplined trading practices. Market volatility is your friend, as you monitor stocks or currency pairs exhibiting significant price movements. Liquidity is also essential, as it allows you to enter and exit positions without affecting the market price.
Remember, there are two primary professional day traders: those who work for large institutions and independent traders. Institutional day traders have advantages such as resource access, direct lines to counterparties, large amounts of capital and leverage, and sophisticated analytical software. On the other hand, you as an independent day trader often manage your own funds or trade with limited resources. But you can use technical analysis, swing trades, and leverage to generate profits.
Day trading requires access to complex financial services and instruments. You’ll typically need a trading desk, multiple news sources to stay informed, and analytical software. Trading software helps identify patterns, execute trades, and backtest strategies. These tools provide you with a competitive edge.
If you’re determined to start day trading, you must have a solid knowledge foundation, practice your strategies, start with small investments, and remain disciplined.
