The term “Day Trading,” is a bit scary. It gives you images of stressed-out people staring at their computers while the markets swing wildly up and down in front of them.
But the reality is Day Trading isn’t really all that different than regular Trading. In fact, it is one of the most common methods used. But what is it, and how can you learn to benefit from this style of Trading?
First, you should know that Day Trading differs from traditional investing in that all trades are opened and closed within the same trading day.
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Although many advanced traders use Day Trading Strategies, most beginners can quickly master various Day Trading Strategies, too.
And amazingly, you only need a small amount of money to start. Are you ready? Let’s first understand What Day Trading is.
What Is Day Trading?
“Day Trading” is a general term for any trading strategy that doesn’t involve holding positions overnight. Day Traders ensure they open and close all of their trades during the same trading session or day.
The best thing about Day Trading is that you don’t have to worry about sudden changes in the market that can happen overnight when you aren’t paying attention.
So, you can get a good night’s sleep and be ready when your local market opens again. Of course, this depends on which time zone you live in. Since a Day Trader in Hawaii will have to wake up around 3:00 AM in the morning.
But for the most part, the schedule for Day Trading is pretty set in stone. Now let’s discuss How to Understand a Stock Chart.
Stock Chart: What Candlesticks Are?
First, you need to know what candlesticks are. Candlesticks show the stock’s open, close, high, and low prices for a certain amount of time.
So, if a Stock Chart has a “Five-Minute Candle,” it means that the ups and downs of the stock price over the last five minutes have been tracked and shown in a candle that you can look at to figure out what happened.
We have green and red candles. The green candles show whether the price went up or down during that time. The red candles show that the price has gone down during that period.
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If the candle is red, the price is lower at the end than it was at the beginning. And the opposite is true if it is green. And naturally, the price at its highest point during that time is called the “Wick.”
Stock Chart: How Do You Find Out?
So, if these are the candles, then how do you find out how to understand the indications or signs of stock performance?
When making their first trading screens, most new traders do what everyone else does. They grab a stack of pre-made indicators and put as many as possible under the price bars of their favorite securities.
This “More is Better” approach cuts off signal production because it looks at the market from too many angles. It’s ironic because indicators are most valuable when they make analysis more accessible by cutting through the noise and giving usable information about the trend, momentum, and timing.
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Instead, try a different approach by separating the types of information you want to track during the day, week, or month of the market.
We’ll start with two indicators built into the same panel as the daily, weekly, or intraday price bars.
Moving Averages For Day Trading
Moving Averages look at how prices have changed over specific periods and divide the total by the number of periods to update a running average with each new bar.
EMA & SMA
The 50-Day and 200-Day Exponential Moving Averages – known as “EMAs” – are more responsive than their simpler cousins, the Simple Moving Averages, of “SMAs.”
In other words, a 50-Day EMA is used to measure the average price of a security over the past three months, while 200-Day EMA is used to measure the average price over the past five years.
Bollinger Bands For Day Trading
Next, let’s talk about “Bollinger Bands.” According to “Investopedia,” these give traders an idea of where the market is moving and involve using three bands.
One is for the upper level, another for the lower level, and the third for the moving average. The market may be overbought when prices move closer to the upper band.
Conversely, the market may be oversold when prices move closer to the lower or bottom band. The bands also shrink and grow in response to changes in volatility.
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This tells traders who are paying attention when this hidden force is no longer stopping prices from moving quickly.
MACD Indicator For Day Trading
Setting the Moving average convergence-divergence, or the “MACD” indicator to 12, 26, and 9, is a popular and influential way for new traders to look at how quickly prices change.
This classic momentum tool measures how fast a market is moving and determines when it is likely to turn. When the histogram reaches its highest point and turns around to go through the zero line, it sends a Buy or Sells signal.
The height, the histogram’s depth, and the change rate work together to give helpful information about the market.
Trading Psychology For Investors
I know this is a bit confusing. There is a lot of analysis and statistics going on here. But let’s discuss the most crucial day trading part: Trading Psychology.
To make money as a Trader, you need to change the way you think from what makes sense to what a trader should think.
So, we learn in life that losing money and being wrong are dire. But in Trading, you have to lose money and be false to put yourself in positions where you can make money over time.
I know – it sounds totally backward. What you really need to do is trust your system. If you trade without a strategy, you’ll lose money because you won’t know what to do in your trades, and you won’t know if your actions will make you money in the long run.
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You have to be able to do it over and over and over again, and then you have to study it to make sure it is profitable over time.
Trust On Your Day Trading System & Strategies
So, all the steps that make you money when you do them over, say, 100 trades will also make you money when you do them over 100 Trades. Once you can do that, you’ll know that your system is the only thing you should be thinking about and that you’ll make money if you follow the rules you’ve set up in your system.
When you lose money on trades, it doesn’t make sense to be scared, worried, or angry. In this Day Trading style, losses can provide more chances to make money in the long run if you follow your system.
Day trading is a bit of a double-edged sword. There is a lot of front-loading with how much you need to learn and how challenging it is to set up your systems.
You have to spend a LOT of time learning the basics. You might even want to take a course on Day Trading Fundamentals. But once you’ve found your footing, Day Trading has the potential to be very lucrative and a proven, systematic way to make reliable income.
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But it definitely isn’t for the casual investor. Although, the truth is even an everyday investor can make many mistakes if they’re not careful. In fact, you should probably read another article where I discussed Beginners’ Mistakes when Investing their money.