Stock trading is an interest for some, a hobby for others, but for the savvy and serious investor, it can become a career. Day trading strategies help you discern yourself from the amateurs, and utilize the stock market to work for you, but it’s easier said than done.
Day trading refers to buying and selling stocks during the same day. You buy stocks in the morning, and sell in the late afternoon, and (hopefully) turn a profit in the meantime.
It’s about volume and risk. If you buy in bulk and see a small movement, then you’ll be able to turn hundreds or thousands of dollars out of a single sale.
Day trading is risky, though, so you’ll need the right strategies (and the right mindset) to cement your feet in this world and take it by the horns.
1. Trading The News
This is one of the most common ways we see trades happen, much like Gamestop and AMC during early 2021. When stocks hit the news, buy them, and then sell when the going gets good (or, y’know, hold onto them if the stock prices actually made the company better and now they’re on the rise).
2. Breakout Trades
Breakout trades aren’t something you’re just going to get a notification or indicator for, like a news report. You have to know what to look for, and buy stocks after they rise above the resistance level.
However, breakout trading has a very high risk of failure, so you have to be doubly careful when trying it out. If you’re not sure how a breakout trade works or you’re not interested in learning, there are other methods at your disposal.
3. Buying The Pullback
A stock is on the rise, but it staggers a bit (as many do), and price dips a little bit. Does that undo the last month of its upward trend? Hopefully not. Buy when it hits that dip as your entry point, then ride it as it rises again.
Keep a close eye on this stock/company and see how it fares before you decide to sell, because if fate plays in your favor, you may have found a keeper.
4. Momentum Trading
When a stock rises, it’s usually not because you invested in it; it’s because a lot of people invested in it! As it rises and gains traction, other people are seeing it at the same time you become aware of it.
It’s time to buy, ride the momentum, and then sell when it begins to level off. This can be done in a single day. It’s important to note that if you see anything on Reddit threads or finance forums where people are doing this to a single stock with the intent of a pump-and-dump, you have to avoid that stock at all costs to stay lawful.
It’s best to avoid opinion-based forums and go strictly off of industry news instead.
Scalping sounds bad, but it’s not buying and selling PS5’s on eBay like some sort of degenerate. It’s buying and selling stocks in large volumes, but selling them extremely quickly.
Scalping is popular among the more disciplined day traders for one reason: you can minimize losses. If you buy a stock at $0.10, and it moves up to $0.11, many scalping day traders will sell.
If it drops to $0.09, they’ll sell, because it minimizes loss and they accept that loss is part of the game. If you sell stocks when they move one cent, and you buy in bulk, you can stand to gain $100.00 - $300.00 from relatively small, inexpensive stock sales.
Deciding What & When to Buy
If you don’t know if it’s time to buy, consider the following:
- New IPO: An initial public offering is a company opening themselves to investors for the first time. If the company looks good, it’s time to get in on the ground floor while you still can.
- Fills a Need: Tech companies are their own gamble, and you’re unlikely to find the next Apple or Tesla. Find a company that fills a need, and if they’re doing it well, they’re sure to grow.
- On the Rise: It’s rare to find momentum stocks in the OTC market, but it happens. If something’s on the rise, hop on the bandwagon, pay close attention, and be sure you know when to hop back off!
Deciding When to Sell
If you don’t know if it’s time to sell, consider the following:
- Change in Earnings: You bought the stock for a reason, so is that reason still ringing true? If a company shifts position and doesn't represent your investment values or beliefs anymore, it may be time to sell.
- Slow Growth, Minimum Profit: Are you up right now? Would selling a bulk of 3,000+ shares net you a few hundred, or a few thousand? If the company has a stagnant history with little to no signs of growth, it’s time to sell while you can.
- Prices Are Falling: It’s up right now, but it’s been trending downward for a while, and there’s no sign that it’s going to get better (news, new CEO’s/COO’s, etc.), and we all know what to do with a sinking ship—get off of it!
Day Trading FAQ's
Yes, 1% (and usually no more than 2%) per day is good. Keep in mind, this isn’t per trade, but rather per day. That means you should never risk more than 1% of your total account value on day trading.
This has a more complex way to go about it, such as stop-loss orders and such, but typically speaking you should never risk more than 1% of your total account value.
Depending on your brokerage, you may not incur restrictions depending on your total account value and maintained minimum. For more information from the SEC, read this PDF straight from them.
A pattern day trader is someone who buys and sells the same stock within the same day on more than one occasion per week. If you buy Apple on a Monday, and sell it before the market closes on that same Monday, you are a day trader.
If you buy on a Monday and sell on a Tuesday, you could still be considered a day trader, but not a pattern day trader.
PDTs, or pattern day traders, are actually flagged by brokerage systems because pattern day trading can sway the market, and lead to massive pump and dumps.
A pattern day trader may be limited or restricted, which is why people will use multiple platforms or prefer unregulated OTC platforms, where this isn’t as much of an issue.
They are similar. Investing generally means inputting money for a long-term strategy. Gambling is about risk with potential return, and sometimes it works, though most of the time it doesn’t.
Because day trading relies on the same trades within a 24-hour period being bought and sold, it’s definitely viewed more like gambling than investing.
Executing strategies is what makes the difference between an amateur/gambler and a seasoned day trader. While it will never earn as much respect as long-term traditional investing, a good day trader understands the way the market breathes exceptionally well, and that skill can later be transferred to using short-term gains for long-term investments.
Should You Start Day Trading?
Deciding when to buy, when to sell, and staying up-to-date on industry and market news is important for day trading. It can become a career, but only after you learn enough about it through experience, and (hopefully) stick to the 1% rule.
You can live below your means while you go full-time if you must, but day trading requires the same (if not, more) time than a standard 40-hour wage-based job, and you’re not guaranteed any return at all.
Proceed with caution, and use strategy at every turn.
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