Day trading can be a very profitable profession, or a lucrative side hustle. But what is day trading really like and is it something you could do? Let’s look at 5 things to know about day trading before you start.
1) What is it?
Day trading consists of buying or shorting stocks within a period of one trading day. You could enter a trade for five minutes, or you could be in the trade for six and a half hours, the length of the US stock market opening times (the UK market is eight and a half hours). The idea is to be trading stocks that are moving off news (we’ll speak more on that later). The more volume, amounts of shares trading hands, the more movement in the stock.
2) What do you need to start?
Two things that you will need to start day trading is a device to trade on and an internet connection. Most traders use a computer or laptop, whilst others may stick to using a mobile phone. When trading, information is key. A being confined to a small phone screen could make things difficult. So we suggest trading using a computer or a laptop (if you like to be more portable option).
Other additions you can make is using multiple screens that you can plug into your computer. Or, some tablets have the ability to be used as wireless second screens. The added screens will help you keep an eye on more charts and news feeds to have an edge.
Volatility and volume play a big part in day trading. Traders will be looking for the stocks that have moved the most overnight, usually off of news or previous volume. You want to look for the best returns. There is no point trying to day trade a stock that is only going to have a 1% range. Often the top movers could have a range of 20%-50%, sometimes also seeing crazy runs of 100%+. But with volatility comes more risk. You could make 20%, but you can also lose the same amount. So having a good risk/reward before any trade is key.
4) Best time to trade
After opening bell, the most volatility is seen as traders step in to capitalise on news and investors already owning the stock take profits. Another good time is the last hour of the trading day, as once again more traders and investors come in to hold overnight or sell for the day. The times to look out for is 8am-9:30am in the UK and 3:30-4:30pm. The US times for the UK are 2:30-3:30pm and 8-9pm. The 2:30pm BST time is the most traded around the world as both Europe and the US are actively on the market.
Returns can vary on the ability of the trader and the risk they are willing to take. Using 10% of your account and making 20% on a trade can return you 2% of your total account. A more experienced trader may go larger into a trade and be able to catch more of the trade, offering them a higher total account gain % in the end. As you learn and gain experience, you’ll start to increase the money you make.
1% a day is a good target. There are around 252 trading days in the year. If you make 1% consistently a day and reinvest this to compound your account, you’d increase your account by over 12 times. Quite a nice return, isn’t it?
These are our top 5 things to know about day-trading before you start. There is a lot to learn along the way. After all, if it was easy everyone would be doing it. But we hope this bit of knowledge can get you on your way.