If you are new to trading and interested to find out how to start day trading no doubt you have a bunch of questions.
In this post I hope to answer many of the questions I had when starting out day trading. I’d also like to offer some opinions for getting started and highlight many of the traps beginners traders fall into.
The goal of this post is to help stream line the process for beginners getting started day trading.
Table of Contents
- How to start day trading | Introduction
- Deciding to trade fundamental versus technical analysis
- Deciding what are the best markets to trade
- Getting educated
- Selecting a trading platform
- Selecting a brokerage account
- How much money do you need to start day trading
- When to start trading live
- How to get funding to trade
- Trading equipment and gear
How to start day trading | Introduction
Most likely you have been researching day trading online either reading other blogs or youtube videos. Many of these resources are great and if you’re like me they triggered your interest in day trading.
The problem with so many resources available, is being able to form a systematic approach to learning to trade.
Many online resources are available to encourage you to sign up and purchase a trading education program etc.
Choosing the best option for your needs is often difficult. That’s why I feel it helps to step back from much of the marketing hype to understand a few simple trading concepts that can help you make better decisions before jumping in head first.
The following is a series of topic discussions to help you make important decisions for stream lining your day trading learning process.
Deciding to trade fundamental versus technical analysis
Ok, this is the very first decision you’ll make as a new trader. Deciding whether to trade using fundamental or technical analysis to make your trading decisions.
Traders often incorporate parts of both techniques in their market analysis but almost always use one predominantly over the other and describe themselves as either a fundamental or technical trader.
Whether you decide you prefer to trade using fundamentals or technicals will often determine what markets are best to trade. More on this in a later section.
Understanding Fundamental Analysis
Fundamental analysis is the use of company report data, earnings reports and even news events to make trading decisions.
It could be argued that this type of analysis is less ‘popular’ in day trading spheres than pure technical analysis. It is however still very common among traders looking for a genuine trading edge.
Company report data, earnings report data and News events provide the catalyst for a price move. Typically traders will use fundamental analysis with a sound understanding of technical analysis to make trade entry and exit decisions.
If you’re the sort of person who has excellent research skills and enjoys investigating company report and financial data. Using fundamental analysis is and excellent way to create a genuine trading edge.
Understanding Technical Analysis
Technical Analysis has become an extremely popular method for making trading decisions. Most likely it’s what you’re already become familiar with and associate with day trading.
Technical Analysis relies on repeatable patterns forming on a time versus price chart. These price patterns are often supplemented with indicators that use various mathematical computations of time, price and / or volume data.
Technical analysis is a very powerful method for day trading. Be warned however that finding an edge using technical analysis isn’t as simple as its often portrayed to be. To find a genuine edge trading technicals takes plenty of experience, discipline, and skill.
If you’re the sort of person that it mathematically inclined, has great pattern recognition skills and has the patience and discipline of a saint! Then using technical analysis to day trade could be a good option for you.
Deciding what are the best markets to trade
At this point you may have an idea how you want to make your trading decisions. This is an important first step because it leads into the question: what are the best markets to trade?
Before reading further or after you read this post, I suggest reading ‘What are the best markets for day trading?’. This will help answer this question in detail.
Depending on whether you are more inclined to trade using fundamentals, technicals or a bit of both is really going to give you more clarity on what are the best markets for you to trade.
If for example you decide to trade predominantly using fundamentals, trading individual stocks are far and above the best markets to be trading. You could also choose to trade the Forex markets but finding a genuine informational edge is much more complex.
If however you’re more inclined to traded based on technical’s you’re choices are less limited. You’re looking for markets with good volume and consistent price patterns. The futures markets are ideal for day traders and are my market of preference for technical trading. Stocks are also a very good option particularly if also interested in incorporating some fundamental component into your trading.
If your serious about your finding success as a day trader you’re going to need as much help as you can get. Don’t be fooled by how easy some people make it look. Day trading is hard!
Remember you are competing against against banks, investment firms, professional traders, computer algorithms and more. All of which will be better funded and resourced than you.
This is not to say you can’t find success. Because you can. Despite the competition I believe there’s almost always inefficiencies in any market. Your job as a small retail trader is to work the edges and ride the waves of the big boys. You’ll likely need help to do this successfully.
You can of course teach yourself through self directed study by reading books and using online resources. This is a great way to start.
I certainly like using many of these resources as possible. Books, blogs and online resources provide a solid introduction to trading and teach the basics.
There are a huge range of trading literature available these days to traders. Check out my favorite books section for a list of my favorite trading books.
All the fundamental trading knowledge you require is available in these books and basic online trading courses.
Enrolling in an online trading course is certainly a great way to speedup your learning curve.
However don’t expect these courses to instantly turn you into a successful trader. Its just not that simple!
Having realistic expectations
It’s important to provide some perspective at this point. Do you really think that simply taking a course charging $300, $1000 or even $10000 is going to provide you with everything you need to pull almost as much money as you want out of the market daily? Of course not!
Whats really required is hard work, discipline, commitment, a never give up attitude and screen time.
It can take years to develop the skill and market experience required to develop consistency as a trader so its important to come into this with realistic expectations.
Despite the challenges remember that once you know how to do this the rewards are massive. Time, location and financial freedom. This really is the best job in the world!
Consider mentorship over curriculum training courses
To give yourself the best chance of success and speed up the learning process getting some sort of mentorship is really important.
Often this is the price difference between pure trading courses charging in the hundreds of dollars and mentorship programs that will typically run into thousands of dollars. An accelerated mentorship program it can shave years off your learning curve and help you avoid costly mistakes.
Mentorship can be either though online seminars, online trading rooms (make sure it has an active head trader) and one on one mentorship programs.
I have developed a list (that I will publish shortly) of my favorite mentorship training programs that I believe offer excellent curriculum’s.
This list will include courses relating to Stocks, Forex and Futures and for those interested in trading fundamentals and / or technicals.
Selecting a trading platform
Trading platforms are your online interface for connecting to a data feed and brokerage account. They enable you to place and amend trades.
Trading platforms almost always include some sort of charting software. For Technical day traders this is essential.
Selecting an easy to use, stable and feature rich trading platform is important.
Fortunately there are plenty of really good trading platforms packages available. So you have plenty of choice and despite what some people believe, you don’t have to pay a fortune or pay anything at all for that matter.
Likely your choice of market and / or mentorship will be influence your choice of trading platform. However don’t limit yourself to what your trading community or mentor is using, especially if it’s costing you a fee. Often you’ll find identical features across almost all platforms.
Check out my list of favorite trading platforms.
The best trading platforms allow trades to be added and amended directly on the chart, have some form of easy to use market replay function and have a big selection of tools and indicators built in and free to use.
Selecting a brokerage account
Your broker holds your account funds and executes trades on your behalf.
For day traders the choice of broker is important. Unlike longer term trading precise entry and exits are very important. Its therefore more essential to considered the speed of trade execution, reliability and also the costs to place trades.
You’ll also need to make sure your broker supports your trading platform of choice. Most brokers offer a limited selection of platforms.
I’ve put together a list of brokerage firms that I like as a good starting point for anyone looking to open a demo or live account.
Demo trading account
Its a great idea to open a brokerage demo account straight away.
Most brokers will offer a free 7-14 day trial demo account that includes the use of a limited choice of trading platforms and includes a market data feed.
This allows you to trade in simulation mode using live market data. Some of the best platforms offer market replay data. A market replay function is great. It lets you replay and trade the market anytime of the day around your existing work and life schedule.
Opening a demo account straight away is a great way to get familiar with using trading platforms and executing trades from the very start.
For more experienced traders demo accounts are a great way to test and develop trading strategies before trading live.
Demo accounts are also offered after opening a funded brokerage account. This eliminates the need to having to renew free trial accounts after the 7-14 day expiration period.
Opening a brokerage account
If your looking to trade live or simply wanting to get free ongoing access to a trading platform and demo account you’ll need to open a brokerage account.
Opening a brokerage account is a fairly simple process. The specifics vary depending on the brokers requirements but typically you’ll be required to submit a form detailing personal information, supply identification and agreeing to a series of terms and conditions.
There may also be additional selections for types of market data feeds and trading platform selections. These selections can be amended at a later date.
Once this has been submitted and the account approved by a brokerage account manager you will be sent via email funding details to fund your account.
Most brokerages require a minimum opening balance to open a account. They also typically require a minimum account balance to be maintained to trade.
Fees and commissions
Its a good idea to compare fees and commission charges for various brokerage accounts. Typical fees might include:
Data feed fee – This is charged by the exchange to the broker so its often always the same across all brokers never the less its worth checking.
Per side and round trip fee – This is where you are going to want to shop around. This fee is charged every time a trade is executed. These fees vary substantially between brokers and can add up if you are placing a lot of trades. Per side fee is charged for opening or closing a position. Round trip is charged for opening and then closing the position.
These fees include brokerage commissions and exchange fees.
Trading Platform fee – Some brokerages charge a fee to use a specific trading platform of specific features of a trading platform.
How much money do you need to start day trading
The amount of money you need to start day trading mostly depends on the market you choose to trade, the amount of leverage you want to use (Margin requirements) and your brokerage account.
As a general rule I only risk 2% of my total account size or available funds per trade.
If your just starting out its a good idea to trade the minimum lot / contract / position size available. To find the ideal starting account starting balance take the minimum position size and multiple it by 50 to give the account size needed available to be only risk 2% per trade.
Not all these funds need to sit in a brokerage account in fact it’s often a good idea not too. Generally, have a least enough sitting in the brokerage account to cover margin and minimum account requirements plus a buffer to allow for drawdown.
The minimum account balance requirements vary depending on the market and brokerage account.
How much does it cost to start day trading Forex
Low startup costs are one of the appeals for many to start trading Forex.
The Forex market has the lowest barrier to entry. Often brokerage accounts can be opened for as little as a few hundred dollars.
Mini and micro lot sizes allow traders to take small positions.
Because most brokers profit from the spread between the bid and offer trading commissions are a percentage of the trade position size. Therefore traders aren’t at a disadvantage trading small positions.
How much does it cost to start day trading Stocks
Trading stocks generally requires the most funding. The Pattern Day Trading rule requires a minimum account size of $25000 USD.
This applies to US stocks and brokerage accounts based in the US.
For traders with less funding this rule can be circumvented by using brokerage firms based offshore that provide access to the US markets.
The minimum position size depends on the share size of the stock being traded. However most brokers have a minimum commission fee irrespective of the number of share traded. Fees are charged per trade plus a per share amount.
Trading small positions in stocks means you will be paying higher fees of percentage basis.
How much does it cost to start day trading Futures
Futures brokerage accounts can be opened with as little as $500. With margins as low as $400 per contract.
The minimum trade size is limited in futures my tick size. A tick is the smallest price movement and varies depending on the instrument being traded. This often restricts small position sizing.
Brokerage fees are charges on a per contract per trade round trip basis. These vary depending on the broker and instrument being traded. Fees effectively work out as a percentage of position size meaning there is no disadvantage trading smaller size.
When to start trading live
Ok, so your probably etching to get starting trading live and make some money right! Wait up! Have you proven to yourself that you can actually trade successfully? Most importantly can you trade successfully consistently over a significant period of time?
If you haven’t, I wouldn’t risk a cent of my own capital in the markets to find out.
Sure there is very important physiological lessons to be learnt from trading live and risking money. But if you haven’t proven that your strategy works in demo then you really have no place in the live environment in my opinion.
Remember your capital is your most important resource in the trading world. Protect it at all times.
Prove that your strategy works in demo. Then go live. As a general rule look to double your trading account whilst risking 2% of your account size per trade. If you can do this, then you have proven to yourself your strategy works and its now time to test mental toughness in the live environment.
How to get funding to trade
Ok, so for many people this may seem a bit far fetched… “What!? someone is going to give me money to trade!?”
But actually there are plenty of people and organisations willing to provide you with funding to trade, assuming you can prove you can trade successfully.
This is fantastic for traders of all levels. It effectively eliminates much of the risk by trading your own money, also significantly lightens the psychological burden.
If you have developed a successful trading method and would like to find out more about trialing for a funded account click here.
Trading equipment and gear
There is a minimum amount of equipment and gear that you’ll need to get started trading.
With time and success you’re going to want to upgrade your system for better performance, comfort and convenience. In a future post I with list and review my favorite trading equipment and gear.
If you are just getting started below is a list of the minimum requirements to get started.
Trading platform software is less computer power intensive than perhaps you may think.
Be sure to check the minimum requirements of your selected trading platform before purchasing a new machine.
Below is a rough guide for the minimum PC specifications required to at get started.
- Windows 7 or later
- 1 gigahertz (GHz) or faster 32-bit or 64-bit processor or better
- 8GB RAM
- Dual monitor compatible graphics card (see ‘monitors’ below)
If you are looking to run a multiple monitor setup its definitely worth investing in a high specification computer particularly a high quality graphics card.
If your looking for a new computer or computer monitor setup. Check out my favorite equipment.
If your currently using a monitor less than 17 inches. I would consider upgrading straight away.
You’re going to be putting in some serious screen time so having a large high quality monitor is a great investment.
I consider at least one additional monitor a must. If your strategy involves looking at more than one chart then having an additional monitor is going to make life so much easier.
Reliable Internet Connection
Reliable and fast internet is a critical. Generally it’s a good idea to use at least a hard wired ADSL1 broadband connection.
I currently use ADSL2+ Broadband via wifi at 10 Mbps download speed and that suits me fine.
Its also a good idea to have some sort of backup connection. This could be a hot-spot connection off your mobile device from a different provider. If your main connection fails this gives you access to close out open positions before needing to call your broker.