Day Trading for a Living – Benefits, Risks and How to Succeed


By definition, Day Trading is the regular practice of buying and selling one or more security positions within one trading day. No position, long or short, is held overnight.

Day traders frequently trade thousands of shares, often with leverage, and seek small percentage returns on each trade – often less than $ 1 or $ 2 per share. Positions are taken based on your analysis of the likely price direction of a stock within the trading period.

Popular Day Trading Strategies

Scalping. Many day traders sell as soon as the trade is profitable, after covering commissions, interest costs, and overhead. This strategy is effective as long as most small trades are, in fact, profitable and the trader is equally quick to cut losses.

Fading. Many traders short sell stocks with a rapid upward movement, anticipating that other investors may take a long position. The combination of short sellers and those taking a profit creates an imbalance between buying and selling, leading the action to the downside.

Daily Pivots. Anticipating that many stocks will trade in a daily range, day traders can buy low (a “support” level) and sell high (a “resistance” level) or, conversely, short sell the stocks. at the resistance and buy back the position at the support.

Momentum. Traders buy a stock if it is moving higher with increasing volume. They are sold when the price is trending down with volume, assuming the price direction continues after they take a long or short position, so that they can close the trade at a profit.

In recent years, computers have been responsible for much of the volume in the US equity markets. Small trading houses and day traders cannot compete with large brokerages, high-risk companies, and other institutional investors who spend millions of dollars developing computerized algorithms to exploit such markets.

Necessary tools for Day Trading

1. Infrastructure

Today’s merchants rely on a combination of computers, monitors, routers, modems, and specialized software to keep abreast of the market on a 24/7 basis.

They need access to a level II trading service, which provides real-time quotes from individual market makers (the “bid” and the “asked”).

Level II Access is the highest level of information available to anyone who is not a member of NASDAQ and a registered market maker.

2. Substantial Capital (Solid Capital)

Day traders should use margin accounts if they are short selling – selling shares of a stock that you do not own in anticipation that the price will fall.

In theory, when you sell a stock short, you take unlimited risk as there is no limit to how high the share price can rise before hedging the short position.

Conversely, buying a share has limited risk as the share price cannot go below zero.

A margin account is similar to a line of credit guaranteed by the cash or stock value in the account.

Day traders trade a variety of different markets – stocks, options, commodities, and currencies – as their investment criteria is price volatility, not value. Capital requirements vary for each market, but the principles of day trading apply to all:

-Opening and closing of positions every day, being without values throughout the night

-Initiating transactions based on technical analysis

-Buy or sell short when necessary to take advantage of the projected price movement

3. Knowledge

Traders are not concerned with the fundamental value of the companies whose shares are traded.

Traders are concerned with the psychology of the market – the fears and hopes of individual shareholders as they buy and sell.

They focus on the metrics that represent those sentiments, rather than factors like price-earnings ratio, market share, or competition.

With the use of computers and software, traders make decisions based on technical analysis, mastering which requires hours of study and knowledge of historical individual stock price movements.

Based on past price results and corresponding issue volumes, technical analysts use extensive charts to visually represent price movement, as well as trends such as moving averages and relative strength.

4. Experience

What virtual trading can’t prepare you for is the psychological pressure of having significant real money at risk.

You can read a hundred books on lion taming, but never really understand what it feels like to be face to face with one.

Despite themselves, many traders learned that there are easier ways to earn a living.

5. Discipline

While discipline is important when making a decision to take a profit or loss, one of the hardest things for a day trader is to refrain from making a trade unless conditions are right.

Having a plan and sticking to it is critical to profitable day trading. Some rules that traders use include placing a stop-loss order at the same time as the trade is executed to limit losses to a fixed percentage of the investment.

Close a position when an expected event does not happen, regardless of the outcome of the trade, and never hold a position overnight, under any circumstances.

6. Time commitment

Day traders can easily spend 60 to 70 hours per week, either trading or preparing to trade. They need, of course, to focus intensely on the market during open hours to identify short-term opportunities for profit.

Day Trading Benefits

In addition to potentially huge profits, Day Trading has many benefits for those rare individuals who can manage their emotions and withstand the inherent pressures:

-Independence. Many traders are self-employed, working for themselves without being accountable to anyone. They are true entrepreneurs who live off their wits and hopefully reap the benefits of their own decisions.

-Euphoria. There are few events that can match the emotional high that comes with a huge benefit derived solely from the efforts of one person.

-State. Day traders occupy an almost mythical status in certain communities, similar in many ways to the legendary “swift weapons” of the old west – iconic strangers living by their own rules and making their own way.

The risks of Day Trading

Despite the benefits, traders must manage a number of financial and psychological risks:

Loss of capital. Even if most trades are profitable, considerable initial costs such as initial hardware, software, and news services must be paid before trading can begin.

Market movement. It’s hard to make money when the market is moving less than 100 points in either direction from the day before.

According to MoneyBeat, 2013 was one of the least volatile years on the S&P 500 index, moving an average of 0.55%, below its post-1928 median of 0.76%.

Psychological addiction. According to Ed Looney, executive director of the Compulsive Gambling Council of New Jersey, day trading is “like crack cocaine – it is much more addictive than other types of gambling.”

Some psychologists suggest that gamers and day traders are similar in that they tend to be competitive and have above-average intelligence.


While the possibility of becoming extremely wealthy in a short time is what draws people to Day Trading, the unfortunate fact is that failure, financial loss, and depression are the most likely outcomes.


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