10 Day Trading Tips for Beginners (2024)

Day trading is the act of buying and selling a financial instrument within the same day or even multiple times over the course of a day. Taking advantage of small price moves can be a lucrative game if it is played correctly. Yet, it can be dangerous for beginners and anyone else who doesn't adhere to a well-thought-out strategy.

Not all brokers are suited for the high volume of trades day trading generates. On the other hand, some fit perfectly with day traders. Check out our list of the best brokers for day trading for those that accommodate individuals who would like to day trade.

The online brokers on our list, Interactive Brokers and Webull, have professional or advanced versions of their platforms that feature real-time streaming quotes, advanced charting tools, and the ability to enter and modify complex orders in quick succession.

Below, we'll take a look at ten day trading strategies for beginners. Then, we'll consider when to buy and sell, basic charts and patterns, and how to limit losses.

1.Knowledge Is Power

In addition to knowledge of day trading procedures, day traders need to keep up with the latest stock market news and events that affect stocks. This can include the Federal Reserve System's interest rate plans, leading indicator announcements, and other economic, business, and financial news.

So, do your homework. Make a wish list of stocks you'd like to trade. Keep yourself informed about the selected companies, their stocks, and general markets. Scan business news and bookmark reliable online news outlets.

2.Set Aside Funds

Assess and commit to the amount of capital you're willing to risk on each trade. Many successful day traders risk less than 1% to 2% of their accounts per trade. If you have a $40,000 trading accountand are willing to risk 0.5% of your capital on each trade, your maximum loss per trade is $200 (0.5% x $40,000).

Earmark a surplus amount of funds you can trade with and are prepared to lose.

3.Set Aside Time

Day trading requires your time and attention. In fact, you'll need to give up most of your day. Don’t consider it if you have limited time to spare.

Day trading requires a trader to track the markets and spot opportunities that can arise at any time duringtrading hours. Being aware and moving quicklyare key.

4.Start Small

As a beginner, focus on a maximum of one to two stocks during a session. Tracking and finding opportunities is easier with just a few stocks. Recently, it has become increasingly common to trade fractional shares. That lets you specify smaller dollar amounts that you wish to invest.

This means that if Amazon shares are trading at $3,400, many brokers will now let you purchase a fractional share for an amount that can be as low as $25, or less than 1% of a full Amazon share.

5.Avoid Penny Stocks

You're probably looking for deals and low prices but stay away from penny stocks. These stocks are often illiquid and the chances of hitting the jackpot with them are often bleak.

Many stocks trading under $5 a share become delisted from major stock exchanges and are only tradable over-the-counter (OTC). Unless you see a real opportunity and have done your research, steer clear of these.

6.Time Those Trades

Many orders placed by investors and traders begin to execute as soon as the markets open in the morning, which contributes to price volatility. A seasoned player may be able to recognize patterns at the open and time orders to make profits. For beginners, though, it may be better to read the market without making any moves for the first 15 to 20 minutes.

The middle hours are usually less volatile. Then, the movement begins to pick up again towardthe closing bell. Though rush hours offer opportunities, it’s safer for beginners to avoid them at first.

7.Cut Losses With Limit Orders

Decide what type of orders you'll use to enter and exit trades. Will you use market orders or limit orders? A market order is executed at the best price available at the time, with no price guarantee. It's useful when you just want in or out of the market and don't care about getting filled at a specific price.

Alimit orderguarantees price but not the execution. Limit orders can help you trade with more precision and confidence because you set the price at which your order should be executed. A limit order can cut your loss on reversals. However, if the market doesn't reach your price, your order won't be filled and you'll maintain your position.

More sophisticated and experienced day traders may employ the use of options strategies to hedge their positions as well.

8.Be Realistic About Profits

A strategy doesn't need to succeed all the time to be profitable. Many successful traders may only make profits on 50% to 60% of their trades. However, they make more on their winners than they lose on their losers. Make sure the financial risk on each trade is limited to a specific percentage of your account and that entry and exit methods are clearly defined.

9.Stay Cool

There are times when the stock market tests your nerves. As a day trader, you need to learn to keep greed, hope, and fear at bay. Decisions should be governed by logic and not emotion.

10.Stick to the Plan

Successful traders have to move fast,but they don't have to think fast. Why? Because they've developed a trading strategy in advance, along with the discipline to stickto it.It isimportant to follow your formula closely rather than try to chase profits. Don't let your emotions get the best of you and make you abandon your strategy. Bear in mind a mantra of day traders: plan your tradeand trade your plan.

What Makes Day Trading Difficult?

Day trading takes a lot of practice and know-how and there are several factors that can make it challenging.

First, know that you're going up against professionals whose careers revolve around trading. These people have access to the best technology and connections in the industry. That means they're set up to succeed in the end. If you jump on the bandwagon, it usually means more profits for them.

Next, understand that Uncle Sam will want a cut of your profits, no matter how slim. Remember that you'll have to pay taxes on any short-term gains—investments that you hold for one year or less—at the marginal rate. An upside is that your losses will offset any gains.

Also, as a beginning day trader, you may be prone to emotional and psychological biases that affect your trading—for instance, when your own capital is involved and you're losing money on a trade. Experienced, skilled professional traders with deep pockets are usually able to surmount these challenges.

Deciding What and When to Buy

What to Buy

Day traders try to make money by exploiting minute price movements in individual assets (stocks,currencies, futures, and options). They usually leverage large amounts of capital to do so. In deciding what to buy—a stock, say—a typical day trader looks for three things:

1. Liquidity. A security that's liquid allows you to buy and sell it easily, and, hopefully, at a good price. Liquidity is an advantage with tight spreads, orthe difference between the bid and ask price of a stock,and for low slippage, orthe difference between the expected price of a trade and the actual price.
2. Volatility. This is a measure of the daily price range—the range in which a day trader operates. More volatility means greater potential for profit or loss.
3. Trading volume. This is a measure of the number of times a stock is bought and sold in a given time period. It's commonly known as the average daily trading volume. A high degree of volume indicates a lot of interest in a stock. An increase in a stock's volume is often a harbinger of a price jump, either up or down.

When to Buy

Once you know the stocks (or other assets) you want to trade, you need to identify entry points for your trades. Tools that can help you do this include:

• Real-time news services:News moves stocks, so it's important to subscribeto services that alert you when potentially market-moving news breaks.
• ECN/Level 2 quotes:ECNs, or electronic communication networks, are computer-based systems that display the best available bid and ask quotes from multiple market participants and then automatically match and execute orders. Level 2 is a subscription-based service that provides real-time access to the Nasdaqorder book. The Nasdaq order book has price quotes from market makers in every Nasdaq-listed and OTC Bulletin Board security. Together, they can give you a sense of orders executed in real time.
• Intraday candlestick charts:Candlesticks provide a raw analysis of price action. More on these later.

Define and write down the specific conditions in which you'll enter a position. For instance, buy during uptrend isn't specific enough.Instead, try something more specific and testable: buy when the price breaks above the uppertrendlineof atriangle pattern, where the triangle is precededby anuptrend (at least one higher swing highandhigherswing lowbefore the triangle formed) on the two-minute chart in the first two hours of the trading day.

Once you have a specific set of entry rules,scan more chartsto see if your conditions are generated each day. For instance, determine whether a candlestick chart pattern signals price moves in the direction you anticipate. If so, you have apotentialentry point for a strategy.

Next, you'll need to determine how to exit your trades.

Deciding When to Sell

There are multiple ways to exit a winning position, includingtrailing stopsand profit targets. Profit targets are the most common exit method. They refer to taking a profit at a predetermined price level. Some common profit target strategies are: