Day trading is buying and selling securities within a single session or trading day. Day traders trade commodities, futures, foreign currency pairs, stocks, or options. Because a day trader is in and out of a trade in minutes to hours he or she is only concerned with events that cause short term and often temporary changes in security prices. The most important of the day trading basics to learn are how to use technical analysis tools to analyze short term price movements and to choose the best trading platform for efficient and profitable trading.
Day Trading Basics for Beginners
Before a beginner starts to day trade they need to decide what sorts of securities to trade. Then they need to learn how to pick securities within that group. An important factor in how much profit you can make day trading has to do with taxes. Day trading taxes vary according to the kinds of securities that you are trading. Because commodity futures profits are taxed 60% as long term capital gains and 40% short term gains or as regular income. Day trading profits from stocks are all taxed at the potentially much higher rate of short term gains.
Day Trading Basics Explained
Once a day trader has decided on trading commodity futures, stocks, options, or foreign exchange, they need to develop a trading strategy and learn how to effectively execute that strategy. Some day traders choose to follow trends and profit from short term fluctuations in that trends. Others wait for their technical analysis software to spot potential turn-arounds. In either case, beginning traders should only trade with the simulation software on their trade station until they work out the mechanics. And, for the best results, novice traders should develop a system patterned on ones used by experienced traders such as the DayTradeSafe System.
Basic Day Trading Rules
An important rule for day traders to be aware of has to do with pattern day trading. FINCA, the Financial Regulatory Authority, defines a pattern day trader as someone who makes 4 or more trades within the space of 5 business days and these trades make up more than 6% of their total trading activity. Because this sort of trading can be dangerous for novices, FINCA makes brokers identify pattern day traders and require that they maintain a $25,000 balance in their margin account. An advantage of trading commodity futures is that one only needs to have enough in the margin account to cover trades in progress.
Basic Day Trading Strategies
Scalping and fading are two basic day trading strategies that novice traders can learn and master. Scalping is the practice of taking repeated tiny profits from trades throughout the day. The trader uses their technical analysis software to spot likely price movements. They enter a buy or sell order and when the price moves as expected they exit the trade with a profit. Fading is the practice of spotting securities whose prices have been moving up and using technical analysis (again) to spot temporary price drawbacks. The trade sells at the identified price and buys when it drops for a profit.
Basic Principles of Day Trading
There are just a handful of basic principles of day trading if you want to be successful. The first is to think long and hard about what securities you want to trade. What most people think of for day trading are stocks but the tax treatment of stock trading profits versus commodity trading profits is such that you need to be hugely more successful with stock in order to match the profits you can get trading commodity futures. The next most important principle is to learn how to trade before risking real money. Learn a professional trading system like DayTradeSafe before putting your hard-earned money at risk.
Basic Terms for Day Trading
Every line of work has its own language. Day trading is no different. Day traders are concerned with volatility, liquidity and volume. The best profits come from trading securities whose prices fluctuate up and down. This is volatility. The best securities to trade are those that trade in high volume and with high liquidity. That means they are traded a lot and when the market goes into a panic you can get out of your trade. These securities are also best for accurate analysis with technical analysis software.
Learning Day Trading Basics
Successful day traders do not rely on tips from friends or someone on social media. They succeed by learning day trading basics from an experienced trader, using a professional trading platform and advanced data feed, and practicing their skills in simulation trading until they can routinely make a profit trading from historical data. Then they start small with small amounts of capital until they prove to themselves that they can routinely make money in the world of day trading.
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