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Is It Possible To Make a Living Day Trading?

S tock market enthusiasts are always trying to get the most reward from their investment. It’s not uncommon for them to wonder whether or not they can make a living trading stock. Being able to quit your full-time job and pay your bills by trading stocks may seem like a fascinating idea, but is it realistic?

Some choose to take a leap of faith, feeling confident by previous success in paper trading simulations, and go for it. Some novice investors will find success, live a comfortable life on a beach with nothing more than Wi-Fi and a laptop. Others may find themselves losing money and wondering where they went wrong. While this diminishes the allure, the thought is still there in the back of your mind. After all, is there truly anything better than getting to be your own boss and make a killing doing it?

If you’re still pondering whether or not it is possible to make a living day trading, we’re here to help. Researching what it takes to be successful as a day trader will help you make an informed, educated decision on whether or not it’s the right choice for you.

Key takeaways:

  • Day traders need to be able to predict shifts in prices quickly.
  • A minimum of $25,000 is required in capital to day trade.
  • Develop a trading plan prior to the start, and stick to it.
  • With knowledge and practice, it’s possible to make a living as a day trader.

Let’s Talk Day Trading

Day trading, in simple terms, is the act of buying and selling stocks on the same day, while holding no overnight positions. If you’ve ever opened and closed a position on a single day, then you have already participated. Day trading is also sometimes referred to as swing trading.

Those who take part in day trading try to predict the shift in prices in mere seconds or minutes before the change occurs. Day traders use technical analysis and gather clues as to when exactly the highs and lows will happen. This information will help you discover when the best time to enter a position will be. Your goal will be the same as any other type of investing: Buy low and sell higher.

Day traders use leveraging strategies such as gap and go or momentum. This allows them to buy and sell quickly, sometimes within seconds, and still receive a substantial profit.

What Do You Need for Day Trading?

Image via Flickr by free pictures of money

If you want to get your start in day trading, you’re going to need more than your laptop and a brokerage account. You’ll have to meet certain capital requirements, and you’ll need a proper broker as well as all the right tools. We can help you get started.

Capital Is a Must

In the year 2001, the FINRA and SEC set new rules when it comes to equity minimums for what they refer to as pattern day traders. If you don’t have a minimum of at least $25,000 in a brokerage account, then you’ll be limited to three or fewer day trades during a rolling five-day period.

This $25,000 minimum must be maintained daily in order to continue trading. After you hit those three-day trades in that five-day time frame, you won’t be allowed to make another due to bans set by brokers.

Trading Plans

Careful planning is needed before any day trades should be executed. You should ask yourself questions such as:

  • What strategy are you trying to implement?
  • What criteria are you looking for?
  • Is the market volatile?

Ask these questions at the start of every day, especially if you’re trying to make a living by day trading, to help you avoid making any decisions based on emotion. Your plan will help you to retain information in order to better plan future strategies. Having your plan close by allows you to stay on track, especially if one of your trades goes bad.

Direct Market Access

While the majority of brokers no longer work based on commission, there are still costs associated with day trading. Some brokers will sell order flow to market makers. They will then decide where each order is sent. This will affect day traders who need specific timing and accuracy to meet their goals for profit. A direct access broker will allow traders to pinpoint when and where their order will be executed.

Examples of direct market access brokers include:

  • TradeStation.
  • Interactive Brokers.
  • LightSpeed.

What Is a Stock Scanner?

A stock scanner is a tool that searches the markets to find stocks that meet an investor’s criteria. It’s different from a stock screener in that a screener is able to help you index funds with a low expense ratio or even stocks that are making all-time highs. They won’t be able to alert you to every issue of securities on the market.

Stock scanners do help to take some of the guessing out of day trading by narrowing down acceptable stocks. By yourself, you won’t necessarily be able to find the best matches and opportunities in a market with thousands upon thousands of options.

Volatility of the Trade

If you decide that day trading stocks for a living suits you better than a day in the office, you still won’t get to escape those days where you hit a dead end. There’s a certain amount of volatility in the trade. This means that when the stocks aren’t moving, you won’t be making much money.

Don’t force something that isn’t there. Discipline will be crucial here. There will be days where the market stays flat. The key will be to stay still and don’t make trades you aren’t sure of. The good news is that you still won’t be in the office, so you can do some of those errands you have been putting off or just enjoy some quiet time.

Can You Make a Living Day Trading?

It won’t be easy, but it’s possible to ditch your 9-to-5 job. Here are some tips to help you make a living day trading.

Educate Yourself

The fact that you’re showing an interest in making a living as a day trader already indicates that you have an interest in the technical side. Analyzing the market and knowing how to spot resistance and support levels is just the beginning. You’ll need more education in order to become successful. It’s important that you have a basic grasp on the following:

  • Pullback trading.
  • Momentum trading.
  • Breakout trading.
  • Gap and go trading.
  • Bull flag trading.
  • Reversal trading.

You won’t need to master all of these techniques, but it’s necessary to understand them. Narrowing down the list and specializing in certain strategies will prevent overtrading or taking on too much risk.

Once you have decided your best option, write it down and make a plan. Include what strategy you plan to use, how much you’re willing to lose or gain before you’re prepared to close the trade, and the overall risk you agree to take. To help get a better grasp, check out the Warrior Trading chat room to watch traders use these strategies in real time.

Practice Makes Perfect

Famous athletes and actors didn’t achieve their success in a day. They worked hard, took losses, and kept showing up. Keeping this mindset will help you be successful in day trading. Practice makes perfect in this case and is one of the top reasons that day trading is so popular. If you aren’t ready to take it live, you can test out different strategies in various markets in a simulator.

Knowing the Scale

Practice will help prepare you for the real thing, but the only way to know if you’re able to make a living as a day trader is to try it. Paper trading allows you to start small and scale up. When you’re leveraging in a real market, taking the emotion out of the situation will help you make gains.

Keep your goals realistic and attainable. For example, start with a $100 goal and then slowly work your way toward $400, then even $800 as you become more comfortable in the market. These smaller wins will help keep you on track, stick to your plan, and make you use discipline.

Understanding the basics will help you build a strong structure, which is important if you plan on day trading for a living. Many before you have had the same idea, and some have failed. Staying dedicated, being disciplined, and having enough startup capital to continue will work in your favor.