Gretings traders and welcome back. Chris here, bringing you another Survival Guide.
Today's subject will be: What is day trading? We're going to
talk about what day trading is at its core, how you can get
started, and some of the pros and cons associated with day trading.
This subject is going to be one that's more catered towards
traders that are just beginning to dip their feet in. Here at Earn2Trade,
we have all different categories of traders that come to us.
We have traders with 10 plus years of experience, and we have
traders that have no experience whatsoever, and a ton in between.
This will be more on the novice side of the category.
If you already know what day trading is, then you may be more
interested in some of our other videos that are based around
some technical analysis or various other subjects.
But if you are new, this is the type of stuff we need to hear
in order to get on our way to passing things like the Gauntlet
Mini, but without further ado, let's dive on in and have a
good chat about what day trading really is.
With the growth of technology,
it's no surprise really that "what is day trading?" is a question
that's one of the top queries on Google when it comes to trading related terms.
The reason behind this is quite apparent.
There are a lot of traders out there that are interested
in getting started that have yet to do so, and are searching
for the first logical step, which is starting at the beginning,
and the beginning is figuring out what in the world we are talking about
before we dive further. That "what" today is going to be day trading.
By the definition, day trading is a form of active trading
where the trader buys and sells assets and securities multiple
times within one trading session. This portion right here
is key: One trading session.
The idea and definition of day trading is having their positions
open and close within the same day. Day traders open and close
a number of trades per day,
not just one. Their strategies are focused on making profits
from intraday price changes. The idea here
is that, by avoiding holding on to positions overnight,
they're avoiding some of the risk that is associated with
overnight periods where they may not be able to close their
position out when they want to, due to liquidity or just due
to the fact that the market they are trading may be closed
and not available to trade at that particular time. Day traders
prefer highly liquid assets,
so they don't risk being locked into a trade for this exact
reason. They want to be able to get in and out exactly when
they want to, even if it's only after a gain or loss of just a couple ticks.
It could be the smallest movement, but that is okay, and could
be more than enough for a day trader to make the profits
that they need to deem the day a successful day for them.
Despite the concept of day trading having been around for quite a while,
it really didn't kick off until the advent of the electronic
age where we were all provided with
this luxury of having an internet-based system where we can
execute orders in milliseconds versus having to call into
the pit and have someone execute for us.
As the name suggests, day trading does involve closing the
positions, like we mentioned, before the day is done. The
reason behind this is to keep the risk at a minimum if at
all possible, and it's really more so about not just mitigating
the risk, but about maximizing control.
By closing the position off while the trader is no longer
monitoring it, the trader no longer has to worry about that
particular position, which usually is some type of higher
leverage position to allow them to make more money from smaller
amounts of movements in the market.
The idea here is the day trader wants to close that position
off before the night comes rolling around, or whenever it
is that they plan on leaving their screen.
That's the idea. Day traders in general tend to average from
five to eight positions a day, somewhere between the open
and the close. We don't want to consider this to be a
goal. This is just a statistical average.
It doesn't mean that in order to be a successful day
trader, that you have to average 5 to 8 positions a
day. We actually encourage the opposite.
We encourage that you pursue the trades that you feel are
correct trades, instead of an arbitrary number.
Once again, day traders, even though they are averaging somewhere around 5 to 8,
we only want to use that number to give us some sort of reference
point, to get an idea of what it's like in the average day
of an average day trader, instead of using that as a particular
goal. It's also worth noting that day traders can operate
on multiple trading venues simultaneously, and the idea here
is they're seeking to profit from the price movements of
one or more assets by using the arbitrage that's going on
between those two venues, meaning two different exchanges.
If one is priced higher over at venue A, and something's priced
a little bit lower at venue B, they may look to profit on
some of these discrepancies.
These are one of the tactics that day traders use.
As far as what day traders are trading, the Forex world still dominates
the day trading market landscape, but futures are quickly
coming up in second place. As far as Forex goes, some pairs to
pay attention to that are some of the most liquid Forex pairs
that are available to be traded, would be the euro dollar,
the dollar yen, the pound dollar, Aussie dollar, New Zealand
dollar dollar, the dollar CAD, as well as the dollar franc.
We're going to talk about some of the steps that we should
take if we are interested in pursuing day trading, that style of trading as a career.
The first one is the self assessment phase. With any professional
endeavor, it's important to know where we stand. This means
that we take an assessment and say, "what are my skills currently?",
"what are my strong skills, but also, what are my weak skills?".
A very important part of this phase is to identify how we
function under pressure. Day trading
is a high-stress environment. We need to be able to rebound
from emotional triggers without too much difficulty.
We want to find a balance where we can trade and function
almost like a computer, but without having too much emotional
involvement in any of the positions that we're taking. We have
to be driven, but also balanced. Analyzing all of this is
part of the self-assessment stage.
Then, we have the resource estimation. Resource estimation
simply means we need to conduct consider our time and money
situation that we have at the moment before we dive into
trading, before we dive into any trading that is, but especially
before we dive into day trading. Day trading doesn't guarantee
a quick or easy profit overnight.
It does take time and patience in order to learn what is
required to become a profitable day trader.
We need to be realistic about where we stand currently
financially, and be realistic about how long we can go with
how much time devoted, without causing too much damage to our
external life that is currently sustaining the endeavor of day trading.
Number three is going to be practice patience. This is huge.
You've often heard people say, throughout your life
I'm sure, that patience is a virtue. It is, and it is a must in the day trading world.
We need to practice patience and be very, very well in tune
with being patient because one of the key failure points
that I see with traders on a daily basis is something called
"FOMO", which is the "fear of missing out", and FOMO stems from lack of patience.
It stems from getting bored with the charts and finding a
set up that you feel may be good enough, even though it's
not as good as it should be, and then we get involved with
a situation that becomes sticky, and then we snowball from
there. Patience is an absolute must. Then, we have step
number 4, which is develop a strategy. Another crucial portion of the day
trading endeavor is to have a sound base strategy, a strategy that we can follow.
That way, we don't have to think so much when we're in the fray of the battle.
It's more muscle memory instead of deciding with like, an artistic landscape.
We don't want that. We want to have all of our actions planned out ahead of time.
Then number five is, use a demo account.
This goes hand-in-hand with the develop a strategy phase.
The reason is, using a demo account can help us develop a
profitable strategy without risking any financial capital.
In the past, we've actually done a video on why a demo account is important
and how we can go about doing it,
so make sure to check that out as well if you are interested
in the demo account phase.
Naturally, we do things because there is a particular draw
to them, and some of the draws to day trading can be summed
up in these three categories.
The number one draw is the high profit potential. High profit
potential means that the returns that day traders are making
is just absolutely ludicrous when done correctly.
It's an amount of money that can even make the bankers jealous.
Considering the compounding effect and the accumulation of
the capital overtime, day traders can have more money than they
know what to do with, when done correctly.
Then, we have universal application. This type of trading activity
can be applied to all asset classes from Forex, stocks, futures,
options, cryptocurrencies, and more. We can day trade just about
anything, which means once you learn the skills needed to
be able to be a successful day trader,
you aren't limited to whatever it is that you learned on.
Then, we have the transferable skills quality of day trading.
If you do manage to master day trading, it means you're capable
of doing technical analysis, paying attention to the news,
performing back-testing, navigating the markets under pressure,
being self disciplined, and the list goes on, and on, and on. The
ability to do all of these things are skills
that will be extremely important throughout all walks of
life, so the skills that we must master to be successful
day traders, do transfer into other things that are completely
unrelated to day trading.
There are potential cons to day trading as well, with the
first being high trading costs.
This simply means that because we are trading multiple times
throughout a single day, our commissions or fees that we're
going to be paying are going to be higher than someone that
simply opens one position every month versus someone that's
opening 8 positions a day.
Then, we also have the high risk aspect. Because we are trading
with usually leveraged positions, or just a higher amount for
a smaller market movement,
we're exposing ourselves to more risk for volatile situations in the market.
This means if there's a sudden swing in the market, a day
trader is going to be in a much riskier position than someone
that is position trading. Then, we also have harder and more
stressful as a potential con, and this is because the stress
level is absolutely higher because there is more trading
involved. Trading is inherently stressful, which
means more trading, means more stress. The harder aspect means
that we have to be more precise with our position choices
and our exits and entries, due to the fact that we are trying
to nail an entry point and exit point, only to scalp out a
small amount of a market move instead of the grand scheme of a market trend.
In conclusion, day trading does require more patience and
more skill than other forms of trading out there, at least
in my opinion. Position trading and swing trading involve
less trading, therefore it involves less decisions to be made, therefore in
my opinion, it is simply easier to do. But with day trading,
when done correctly, the profit potential is nearly limitless.
It's not something that is meant for everyone.
It is a particularly high stress style of trading,
but it is something that can captivate your interest in a very profound way
that's hard to describe. Think of it
like a Rubik's Cube that is constantly changing.
We might have a strategy that works for a month or so, but
then the market starts to change, and that strategy no longer
works. A lot of people have this misconception that once
you have a working strategy, it will always be a working
strategy, but that's not the case, and that's not what keeps
us very intrigued and interested in day trading.
It's the ever continuously changing challenge that presents
itself, and it's all so rewarding when solved correctly
and when you take it with a serious professional approach.
I hope you have a great journey if you do begin day trading,
and make sure that you start with some of the things that
we talked about here today, and absolutely incorporate a demo
account into your learning experience.
I appreciate you joining me today folks,
and if your goal is to pass the Gauntlet Mini, then guess
what guys? We have all kinds of information out there for you that we've already done,
so make sure you check it out, but I will see you in the next one.
Cheers folks!