What is Day Trading?
Day trading is when you are selling or buying financial securities over a short period of time, it could be within a few hours or even over a few days.
What’s in this ‘Day Traders For Beginners‘ Article:
Day Trading For Beginners.
Let’s get into the difference between investing and day trading.
Investing.
When you are an investor you are buying the actual instrument (financial instrument such as a stock like Apple). That means you are investing a certain amount of capital by buying the stock. Of course you are then hoping the stock will rise and you can then sell at a profit. However you have now tied up all the capital and have to wait for the stock to go up which can take days, months or even years. If the Apple stock goes down then you are in a loss making situation and have to make the decision to either sell the stock and realize a loss or hold on to it hoping it will go back up.
You can of course try to day trade using this method but the stock price will not move very far in a day or two and you will need to invest a lot of capital to make money in such a short period.
Day Trading.
Day Traders on the other hand buy and sell at a higher frequency because they are not tying up their capital because they are betting on the difference in the price change and try to make money when the market goes up and when it goes down as well. They do this through a trading broker that provides them leverage so they can use higher amounts of capital and take advantage of the small price changes during the day or over a few days. This is done using CFD’s or Contract For Differences.
The broker of course makes money either way by charging a commission or taking a bigger spread between the bid and ask price, in return for providing this leverage.Â
Contract For Difference Or CFD.
A contract for differences (CFD) is an arrangement made in financial derivatives trading where the differences in the settlement between the open and closing trade prices are cash-settled. There is no delivery of physical goods or securities with CFDs.
What can you trade with a CFD?
Depending on which broker or proprietary trading firm you use these are some of the CFD’s you can trade.
- Forex (Foreign Exchange)
- Stocks
- Indices
- Cryptocurrencies
- Commodities
Who Can Trade CFD’s?
Day Trading For Beginners introduces CFD’s for everyone. Anyone can trade CFD’s, however as they are risky to trade some regulatory authorities have banned their citizens and residents from trading them as they present to high a risk for the consumer.
So how can anyone trade CFD’s?
You can trade CFD’s for Proprietary Trading Firms. In this case you would be trading their capital and not your own so you would be trading risk free as the Prop Trading Company assumes all the risk.
Countries that DO NOT allow CFD Trading include:
Banned
- United States
- Hong Kong
- United Kingdom
Regulated
- Australia
- Europe
Legal
- South Africa
- Turkey
For a more detailed explanation and a full list read this great article about CFD Regulations around the world.
Risks Of Day Trading.
Day trading comes with its risks. This Day Trading For Beginners article will help you understand the risks. A large proportion of day traders that trade CFD’s lose their money over the long term. Trading is a business and should be treated as such. Nobody goes into business without knowing what they are selling, the same is true of day trading. You must learn the business of trading before you start. Here at AlphaTradrz we are here to get you started on the right track.
How To Day Trade Any Asset Class.
What is an asset class?
The financial markets are made up of a number of different asset classes that can be traded with CFD’s. In general they are, Stocks, Fixed Income (bonds), Forex, Commodities, and now of course Cryptocurrencies.
Overview of how to day trade.
To know what to trade and when to trade your chosen trading instrument and how to manage your risk is key to being successful at day trading. This Day Trading For Beginners article takes you through it at a high level, there are many online courses that provide a deeper dive. Using the following formula will keep you on track for trading any asset class.
Market Driver + Technical Analysis + Risk Management + Trade Execution
Market Driver.
All markets move for a reason and there are many of them. The biggest moves (and thats what we are looking for) are those events that cause institutional traders (banks, hedge funds and mutual funds etc.) to buy and sell the instruments. One of the key reasons for this day trading for beginners article is to highlight the reasons the markets move
For example if the Stock Market is bullish as the NYSE opens at 9:30am EST then the trader sentiment is bullish i.e. they are buyers of stocks. Stocks are considered risky assets in the financial markets so this would be known as Risk On, which makes sense. When this happens the investors move their capital from safe haven assets like the USD and other instruments causing the USD to weaken, which in turn causes the EURUSD for example to to go down.
The markets are full of drivers that cause an instrument to move. You will learn all about these in the trading courses that are found here on AlphaTradrz.
Technical Analysis.
Using trends and support and resistance levels you determine the best point of entry. The trend determines if you are a buyer or a seller, in this case the EURUSD is in a downtrend, so you would be looking for a level to sell around the trendline.
You will learn more about this in all the online trading courses. It is the simplest part of the process.
Risk Management.
As mentioned above, trading CFD’s is risky. To trade them you must have a strong risk management protocol in place or your days of trading will be short. It is probably the single most reason why day traders fail. The other is lack of capital, but we will get into that later.
You may see around the web people claiming their trading strategy is the Holy Grail of trading, if anything is the Holy Grail it is risk management!
Trade Execution.
This is probably the most difficult part. It is the time that you enter the trade. It is all about timing and entry price. All courses will dig deep into this subject.
Summary Of Trading The Asset Classes.
It doesn’t matter which asset class you are trading, the formula remains true to all. Follow this and you should remain safe unless of course you get an emotional explosion and disregard it. You can find lots of Day Trading Strategies and Day Trading Rules on the internet but they should all conform to these simple principles.
How To Start Day Trading.
Now you have an idea of what Day Trading For Beginners is all about, and you want to know what to do next.
Laptop or Desktop?
You will need a good quality Laptop or Desktop. Whilst you can use a Mac most software in this business is created for the PC. You can also use your mobile phone however you should only use this to monitor trades and exit the trades if necessary. You should avoid entering trades as you will not have enough information to do so. You can read more about computers and requirements on our IT For Traders page.
What Broker to Use?
Trading Platform.
We recommend once you have chosen a broker above that you open a demo account (where you don’t use real money) to get used to reading the charts and start looking at a trading strategy that suits your personality.
Here at AlphaTradrz we use the Risk On Risk Off strategy, but you can use whichever you wish.Â
Frequently Asked Questions.
Especially created for this day traders for beginners article.
Yes you can and it is fast becoming popular to trade cryptocurrencies using CFD’s enabling you to profit as the price goes up and down. There is large volatility in cryptos which provides potential for big gains but equally big losses if you get it wrong.
Proprietary Trading Firms trade their own capital. They use their own broker or liquidity provider. They also allow retail traders to trade their capital once they have passed a test to see if they are responsible enough to trade their capital. This is a great way to trade CFD’s if you are in one of those countries that do not allow CFD trading.
Assuming you are picking your trades correctly, the reason a lot of retail traders fail is because they either do not have a risk management protocol in place or they don’t stick to it. If you stick to a good risk management system you don’t actually have to be a good trader to survive. If you do you are likely to succeed.
Many will say no because of the risks involved, however if you are a beginner you will not have any bad habits, so in some ways it is better to be a beginner day trading as long as you have done your homework before you start trading and understand this is a business not a casino.
You can start with as little as $500 but this is not realistic, if you are trying to get rich this amount will not cut it as to make a alot of money with such a small amount will require huge risk to achieve and that will not be sustainable even if you get lucky with a few Hail Mary trades. You would be better trading with a Proprietary Trading Firm and start with $100,000 and take 80% of the profits.
Why Traders Fail!
A large proportion of retail traders fail at some point and fail to be consistent in their trading. Here are some of the main failure points.
You need to be realistic with your expectations. Start with making 10% per annum (yes we know you want to make more than that but it will come). If you started with $1000 and made 10% in the first year that’s not a life changing amount. However if you started with $1,000,000 and made 10% per year then that is a life changing amount.Â
We hear you, you don’t have a million dollars thats why I’m trading! Enter the Prop Trading Company.
Her at AlphaTradrz we use the Risk On Risk Off trading strategy. You can use any trading strategy that suits your personality. You can follow us on one of our trading groups.
Risk Management is the Holy Grail of trading. Get this wrong and it’s all over. There are few online courses that cover this but many do not know how to do this see our online trading courses page for those that do.
Don’t Trade Alone. One of the biggest and most common causes of failure is a lack of accountability. Trading with others allows you to get advice on your next trade. It is difficult to remove the emotions of trading so trading in a team will help you.
Become part of our trading community by joining one of our trading floors – It’s FREE.
Fear not and don’t get despondent, thats why AlphaTradrz was started and why this article Day Traders For Beginners was created to help those people wishing to get started in day trading. Our website has a lot of course and resources to help you lean the business.
Additional resources for Day Trading For Beginners.
Day Trading For Beginners Reddit.
Trading Courses and Education.
Personal Trading Accounts Brokers.
Traders FAQs.
IT For Traders.
Trading Tutorials.