Learn How to Day Trade in 3 Steps

Phone How to Day Trade in 3 Steps

Day trading is the process of buying and selling shares of a stock in the same day. Typically, day traders earn a profit through the use of leveraging and compounding. Most margin accounts allow traders to borrow up to four times their account value, which means a 1% gain on the trade is actually a 4% gain on their account value. This is the power of leveraging.

While 1% may not seem like a lot, if you earn a 1% profit per week that translates into a 68% profit per year, which is well above the 10% pursued by investors. This is the power of compounding.

Combined with leveraging, day traders can earn significant amounts of money. For example, a day trader with an account balance of $25,000 would be able to buy and sell $100,000 worth of shares resulting in potentially $1,000 (1%) from a single trade. Due to leveraging and compounding, this trader could make $67,800 in one year day trading.

Related: Stocks vs Forex: Why Trade Forex?

Here's the Math:

An overall 1% gain would mean 100% of your trade value plus 1% increase which is 101% or 1.01 as a decimal. There are 52 weeks in a year, so if you earned 1% each week that would be 1.01 x 1.01 x 1.01 (52 times) or 1.01^52 = 1.678 = 68%

If your account value is $25,000 and you trade on margin with four times the amount, that would be $100,000. Earning 1% would be $1,000 but it would be 4% of your actual account value of $25,000. While $1,000 per week times 52 weeks is only $52,000, if you kept this money in your account and traded with it, then the interest would be compounded resulting in $100,000 x 1.678 = $167,800 which would be a gain of $67,800.

Your account balance would be $25,000 + $67,800 = $92,800.

The following 3 steps are to help you learn how to day trade:

1. Learn How to Day Trade: Selecting a Broker

In order to day trade, you first need to select a broker through whom you will actually trade stocks. Well known brokers include Fidelity, E*Trade, TradeKing, and Robinhood. While most stock brokers charge $5 to $10 per trade transaction, there is a stock broker that offers $0 commission trades.

This broker is highly recommended, especially if new to day trading, so that you can focus on learning to trade without losing money from trade fees.

2. Learn How to Day Trade: Know the Rules

Anyone who day trades 3 or more times per week is labeled a pattern day trader and must have a minimum balance of $25,000 in their margin account. However, you can avoid this label by trading less than 3 times per week (rolling 5 business day period). If you day trade less than 3 times per week, then you will be labeled a non-pattern day trader and must maintain a minimum balance of $2,000.

While these rules apply to all margin accounts, there are ways to day trade without minimum balances or restrictions. Learn how to Pattern-Day Trade with Less Than $25,000

3. Learn How to Day Trade: Follow a Strategy

To be successful at day trading, it is absolutely essential that you follow a reliable strategy. Day trading is all about risk management and strategy. If you fail to manage risk well, or if you have an unrealistic strategy, then you will lose a lot of money day trading. The following are several articles that cover the basics of day trading strategy, including stock selection, strategy basics, and how it feels to day trade.

How to Day Trade with Daily Volatility (Stock Selection)

Day Trading Strategy Basics

How it Actually Feels to Day Trade

Anyone can learn how to day trade, but it is important to realize that it takes time to develop the skills necessary to be successful. Don't just throw money into the market and expect it to give money back. Most traders lose money because they are inexperienced and do not have a reliable strategy. Greed and emotion are the biggest enemies of day traders. Only trade with a level head, and learn as much as you can before you actually start trying to make money day trading.

Stocks vs Forex: Why Trade Forex?

Want to easily calculate your stop-loss and profit goals?

Download this easy-to-use Stock Profit Calculator. Just type in the stock price and it will automatically fill with stop-losses and profit goals. You can also change the percentages to match your personal needs, as well as enter in your margin use in order to keep your stop-loss at -1% of your account value.

Normally $15, the cost is currently only $9.

Stock Profit Calculator for Daytrading/Day traders - InvestGrowRepeat.com

Get the Stock Profit Calculator now for $15 $9.

Day Trade to Win

Day Trading Myths

4 Simple Steps to Turn $10,000 into $133,033 in 5 Years Day Trading

Day Trade Articles

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