How to Start Day Trading?

We had moved past the phase when stock or forex trading was inaccessible to retail traders. Anyone not working for large brokerages, trading houses, or financial institutions would find it hard to trade stocks actively. Thanks to the continuously evolving virtual world, the forex and stock trading market have seen growth in online trading platforms, leading to increased individual traders trying their hand at stock trading. The market is not more transparent than ever, allowing traders and investors to leverage its volatility while sitting at home.

One of the most popular ways of trading is day trading. It can pose challenges if you are still a new trader, especially if you haven’t prepared a proper trading strategy. While day trading is highly beneficial, it must be kept in mind that everyone, from a novice to a seasoned trader, can face losses. So, let’s read more about how to day trade and everything it entails. 

best day trading indicators case study list

What is Day Trading?

Day trading represents the short time frame of buying and selling various financial instruments within the same day or multiple times over a day. Usually, day traders execute intraday strategies to profit within the same trading day, but sometimes, the position duration can be even a few days. However, some trading companies require their day traders to close each position before starting the next trading day.

Day trading generally means buying and selling any security within one trading day. Usually, the position is closed by the trader before the market closes for that particular day. To do day trading,  you need to be well-funded and well-educated. Day traders take advantage of high leverages and back them up with short-term trading strategies. They aim to capitalize on small price movements in stocks and highly liquid currencies.

You need to have enough knowledge to speculate short-term moves in the market, and a good trader is attuned to that.  Corporate earnings, interest rates, economic statistics, and scheduled announcements on these subjects allow you to foresee market psychology and expectations. If the expectations are not met, the market will react. This can lead to sudden movements, and the traders can take advantage of that.

Is day trading illegal?
Day trading is a legal and ethical way of trading. However, day trading can be a hazardous way of trading and bring devastating losses. Only traders with specific temperaments and skills can engage in this type of trading.

There are several intraday strategies that day traders employ. Some of the most popular ones are: 

  • Scalping: This strategy focuses on making small profits by monitoring small daily price changes. This strategy requires a lot of experience.
  • Range Trading: with the help of this strategy, traders aim to determine buying and selling decisions. This strategy is based on levels of support and resistance.
  • News-Based Trading: whenever vital news is about to break, such as the ones related to economic reports and interest rates, the market becomes highly volatile. This strategy aims to exploit that volatility to gain profits.
  • High-Frequency Trading: also known as HFT, this strategy uses algorithms to address short-term market inefficiencies.

Day trading taxes
Day traders pay higher taxes because they are taxed at the normal income rate. All trading positions held for less than a year are taxed at the normal income rate, and Long-term investments held for more than a year are taxed at a Long-Term Tax Rate. See Table below:

US Gross Annual IncomeLong-Term Tax Rate (more than a year)Regular Tax Rate (less than a year)
Up to $9,3250%10%
$9,326 to $37,9500%15%
$37,951 to $91,90015%25%
$91,901 to $191,65015%28%
$191,651 to $416,70015%33%
$416,701 to $418,40015%35%
$418,401 or more20%39.60%

A Controversial Practice

A constant topic of debate on Wall Street has been day trading. Many believe it can fetch you profits, while others are against it. It has garnered a notorious reputation for itself because of other reasons as well. Malpractices and scams on the internet have created a bad reputation for it. Con artists try to lure new traders by painting false profit-making pictures for them. The get-rich-quick scams are still not hard to find. Most people who lose money while day trading often lack enough knowledge and experience. If you are not ready, you will put yourself at a higher risk with this strategy.

Many financial advisors and money managers believe that the risk involved in day trading does not justify the potential reward. This is why they shy away from it. On the contrary, those who have mastered the art of day trading argue that this strategy has many potentials. However, it cannot be neglected that the success rate is relatively low while it is profitable. This is not because the strategy is flawed but because of its complexity. Another reason for a low success rate is the inevitable presence of online scams. In addition, many financial practitioners and economists believe that long-term passive trading strategies outperform short-term active trading strategies when we look at the results over a significant period, especially when the results are compared after deducting taxes and fees.

It can be argued that day trading is riskier than traditional trading, not everyone’s teacup. It is very demanding in terms of knowledge. A trader must possess an in-depth understanding of the market know-how. Do not get mesmerized by the success stories of a few day traders who made money in one day. These reports are often inflated and hide the failure stories or a significant number of traders. Of course, skill is essential in day trading, but we cannot neglect the role that good timing and luck have to play here.

Is buying and selling options day trading?
Buying and selling options can be day trading as well. A day trade is when you purchase or short an option and sell or cover the same option contract on the same day. Usually, options Nonday traders only get 2:1 buying power, but as a day trader, you will get 4:1 day trading buying power. Of course, traders can trade options as swing, day, or long-term traders based on preference.

Day trading stocks

Day trading stocks strategy is based on short-term price movements in stock and can be very risky for most traders. The biggest problems are high commission, overtrading, and lack of experience. Suppose you decide to trade stocks as a day trader. In that case, you need to test your strategy using expert advisors or manually, be prepared to enter and exit from positions fast (be nimble), and avoid emotions, high risk, and overtrading.

It is essential to understand the characteristics of a day trader to understand what day trading is. First, let’s clarify that we are talking about professional day traders who see day trading as a full-time job rather than a hobby. These people are well-established in this field. They possess profound knowledge of the marketplace. The following are the prerequisites that a successful day trader must have:

  • Marketplace Experience and Knowledge – If you are jumping into the market without understanding, you are doomed. Chart reading and technical analysis are essential skills for any decent day trader. In addition, they must also have a deeper understanding of the marketplace and its assets because charts can sometimes be deceiving. With experience, you become better at it.
  • Sufficient Capital – Day traders stand at a greater risk than conventional traders as they take advantage of higher leverages. Therefore, you must possess enough risk capital. It not only saves you from financial ruin but also allows you to eliminate emotions from trading. It would help if you had significant capital to take advantage of intraday price movements.
  • Strategy – The most important thing is to test your strategy using expert advisors or manual testing. It should not surprise you that you need a good strategy that helps you land a step higher than other traders. There are many strategies like trading news, swing trading, and arbitrage that you can use. It would help if you consistently made these strategies work in your favor.
  • Discipline – Trading is all about discipline. You can have the best trading strategy and enough capital, but nothing can fetch your profits without discipline. Every trader sets criteria before they begin trading, and many lose their money because they cannot keep up with the rules they set. Success and discipline go hand in hand.

Volatility leads to profit, and day traders rely heavily on it. When a stock moves more than usual during a trading day, it can attract day traders. This movement can be because of investor sentiments, general economic news, company news, or earnings reports.

Day traders also favor heavy liquid assets as liquid stocks allow them to change their position easily without compromising the stock price. Traders will likely assume a buy position when a stock shows higher price movement and vice versa. 

Irrespective of whether they open a buy or a sell position, traders are always looking for a stock that shows a lot of movement.

Robinhood day trading
Robinhood trading platform offers day traders the lowest trading commissions. However, if you trade stocks, traders can be considered pattern day traders if they execute four or more day trades within five trading days. To avoid the PTD pattern day trading rule, Robinhood day trading rules say that portfolio value (cash + stocks + options) needs to be greater than $25,000 at the end of the trading day to continue day trading the next day.


Day trading rules

Following day trading rules are essential, especially for beginners:

  1. Risk management is essential. Lower risk is better.
  2. Analyze every trade using technical analysis.
  3.  Do not overtrade
  4. Tight stop loss may impair profitability. Create an exit strategy. Allow the price to have enough room to oscillate.
  5. Do not follow emotions; follow your plan.
  6. Avoid margin trading
  7. Avoid Unreliable Sources in your trading decision.
  8. Do not rush in trading. Avoid opening positions at the moment when the market opens.

Risk management is critical in forex trading; adopting lower-risk strategies often leads to more sustainable and stable long-term gains. Utilizing technical analysis for each trade allows traders to make informed decisions based on market trends and data rather than impulsive guesses. However, avoiding overtrading is essential, as it can lead to excessive exposure and increased risk.

While tight stop losses protect investments, setting them too close can often cut potential profits by not allowing enough room for normal market oscillations. Creating a well-thought-out exit strategy ensures that trades have sufficient breathing space to account for market volatility. Additionally, maintaining discipline by sticking to a predefined trading plan helps negate emotional decision-making; meanwhile, avoiding margin trading and unreliable sources for trade decisions further mitigates risk. Lastly, patience is vital in trading; rushing into positions, especially at market opening times when high volatility can lead to poorly timed trades and increased risk exposure.

Day Trading as a Full-Time Job

There are two main kinds of professional traders: those working alone and for a more prominent institution. Most traders engaged in full-time day trading often work on the payroll of a larger institution. These full-time traders are at an advantage as they can access direct lines, trading desks, leverages, expensive analytical software, and more capital. These traders look for news events and arbitrage opportunities that they can use to earn easy profits. 

Individual traders work on a different model. They either trade with their limited capital or manage someone else’s money. A few of them may have access to trading desks, and most are often affiliated with a brokerage that extends their resources to them. Since their resources are not extensive, they can barely compete with institutional traders. They are also in a riskier position because they do not have access to significant capital. Technical analysis is often the guiding light for these individual traders, and they combine with some leverage and swing trades to maximize what they can.

Day trading is not for novice traders as it requires access to complex financial services like:

1. Trading Desks

Trading desks help you in executing trades instantaneously. You can imagine how crucial speed is when capitalizing on the most minor price movements. For example, if news related to a merger breaks, trading desks will enable day traders to put their trades before the rest of the market, allowing them to use price differential in their favor. Unfortunately, most of the trading desks are reserved for larger institutions. You can get access to one if you are operating a substantial capital.

2. Multiple News Sources

News is the fastest source of information that traders can use to make profits. You must be at the front line when news that can influence stock prices breaks. A good trading room can access constant news coverage and channels like Dow Jones Newswire. It is also essential to have software that analyzes news as it comes.

3. Analytical Software

As expensive as they might be, most traders need trading software. Swing traders and those who use technical indicators need this software more than news. You can characterize an analytical software using the following:

  • Neutral and genetic applications: These programs use genetic algorithms and neural networks to perfect trading systems and predict future price movements.
  • Automatic pattern recognition: as the name suggests, this trading program can identify technical indicators such as channels and flags or even more complex ones like the Elliott Wave patterns.

Is It Time for You to Day Trade?

If you are a new trader, the answer is ‘no.’ As a career, day trading can be exceptionally challenging, especially if you are a novice trader. You need to understand more than just the basics of trading. It would help if you had a clear goal, good capital, and an expert eye to succeed as a day trader.

  • Day trading is time-consuming as well. You need to test different strategies and then test them to find the right one for you. This process in itself demands devotion. Additionally, you cannot be a part-time day trader. It would help if you kept an eye on the slightest price movement so you cannot afford to miss anything.
  • If you want to experience the thrill of day trading, start small. Target a few stocks, and don’t go all in at once. 
  • If you cannot isolate your emotions from trading, you might want to discipline yourself first. It would help to keep your head clear to make the most out of day trading.

The above points will help you identify your readiness for day trading.

How much can you make day trading?
Based on the NASAA Day trading report, the average annual return from day trading is around 11%. In prop company Leanta Capital, the most significant day trading annual return was 44% two years ago, with a maximum drawdown of 10%. However, day trading annual profits can vary from case to case because of different asset trading, risk preferences, and leverage.

Is day trading profitable?

Is day trading worth it?
Based on brokerage companies’ reports, day trading represents a moderately profitable way for prop trading companies. However, this way of trading is risky and expensive for retail traders. The biggest problem with day trading is that most traders have poor results and portfolio performance consistency problems.


Day trading is regarded as a controversial phenomenon. Although it comes with its fair shrew of risks, we cannot neglect that it can be used to make profits quickly. Both individual and institutional traders keep the market alive in liquid. However, if you are inexperienced or don’t have access to enough capital and trading tools, you might lose more here than in a traditional trading market.



Igor has been a trader since 2007. Currently, Igor works for several prop trading companies. He is an expert in financial niche, long-term trading, and weekly technical levels. The primary field of Igor's research is the application of machine learning in algorithmic trading. Education: Computer Engineering and Ph.D. in machine learning. Igor regularly publishes trading-related videos on the Fxigor Youtube channel. To contact Igor write on:

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