Day trading has become a popular way to gain stock market exposure, as brokerage firms now provide easy ways for traders to buy and sell online in pretty much any setting anywhere in the world.
But before jumping head-first into the rapid-action world of the high-octane day trader, it’s best to know what exactly day trading is – and precisely what it entails.
To begin with, day trading is a “short-term investment strategy”, one in which your trades will usually remain open for just seconds, minutes – or at the most, hours.
As the name suggests, day trading involves closing all open positions before the end of the trading day, with no trades remaining open during the market’s after hours.
Some investors might not feel comfortable with this quick-fire approach to investing, instead preferring long-term methods such as value investing – where stocks are held for months, years, even decades – or medium-term trading styles such as swing trading and income fund investing.
Aspiring day traders should also be aware of the risks of this type of investing. While day trading can certainly be profitable, it has its own inherent pitfalls that you must be aware of. For instance, many day traders will often employ leverage to increase their potential returns, but this, naturally, also increases their exposure to greater losses too.
Furthermore, day trading can be stressful for a lot of people, and success is often largely determined by the traders’ personality and mental fortitude.
So, how can you make a success of day trading? And where can you find the best stocks to trade?
Identify Gurus with Proven Day Trading Track Records
Having decided to make a go of day trading, one way to begin your journey would be to search out day traders who have already proved themselves successful over the long-haul.
While there are plenty of examples of investors who’ve hit the jackpot through day trading, one such figure, Oliver Kell, is really worth studying. Kell was crowned the 2020 US Investing Champion, winning his division with a record breaking 941.1% return on investment.
Kell is active on Twitter, where he documents, breaks down, and explains many of his current trades and positions. He also has a website where he goes into further detail about his trading strategy as well.
UPST-fighting back today…was just one day early but if can follow through here on today’s action looks good. pic.twitter.com/dqjLfrpvdz
— Oliver Kell (@1charts6) November 1, 2021
Kell’s attitude to day trading is informed by many of the same concerns that other successful day traders focus on too.
Ultimately, day trading is all about predicting short-term price action, and this means having an awareness of what specific time-frames to use in your analysis, implementing stop-loss orders, and mitigating the risk profile as much as possible.
Simulate The Trading Style You Wish To Emulate
Once you’ve identified and studied the trading habits of your favorite gurus, it’s time to start putting your new found knowledge to the test.
The best way to do this, in the beginning, is to simulate your trading ideas on a demo trading account. Sometimes known as “paper trading”, many online brokers now allow budding day traders to experiment with trading strategies without having to risk your own capital funds or cash.
Using such simulated trading software is an optimum way to get a feel for real trading. Modern day trading will almost always involve you using sophisticated charting and technical analysis tools, and there is simply no substitute for gaining mastery of these techniques than practicing with them in real time.
However, practicing your trading in a risk-free environment doesn’t fully replicate the experience you’ll encounter when trading with actual money.
As mentioned earlier, day trading is mentally taxing, and the stresses associated with it when real capital is on the line are quite different to those you’ll encounter when trading with a dummy account.
Paper trading can also give you a false sense of confidence if the dataset you are back-testing with is successful, but less so when it comes to the real thing. Traders must be aware of certain logical fallacies when it comes to testing their portfolios models, including survivorship bias and look-ahead bias.
Source: Unsplash
How Do I Find The Best Stocks To Day Trade
One of the most daunting aspects of day trading is the realization that you’ll only be trading just a few stocks every day, and that those stocks will inevitably come from what seems like an unlimited pool of options.
It’s even more difficult considering that you will want these stocks to conform to certain criteria that match your trading principles.
But help is at hand. Financhill has a broad range of stock picking tools that can help assist you in narrowing down the best stock candidates for your needs. For instance, Financhill’s Top Growth Stocks segment gives you instant access to key company performance metrics, including sales, profit and margin figures, as well as important financial multiples – such as Enterprise Value-to-EBITDA ratios – for all the fastest growing companies.
Start Trading
Once you’ve put your trading theories to the test, and determined what strategies best fit your investment goals, it’s then time to try the real thing.
It’s here that you’ll need to implement various day trading techniques to profit from your wider trading philosophy principles. There are many intra-day trading strategies you can use, including range trading – which involves using resistance and support levels to decide when to buy or sell a security – and scalping, where small profits can be made throughout the day on slight, almost imperceptible changes in share prices.
When are you are comfortable with these basic trading techniques, you may wish to advance to more complex and exotic investment methods. High-frequency trading, which involves sophisticated computer programs and algorithms, might be an option for those with the technical know-how; or news-based trading, where trading decisions are made on the opportunities in market conditions which shift with various political and financial news events.
Both these approaches require some additional tools, however; HFT is only viable with the latest and best computer hardware, and event trading will necessitate having a reliable and fast market news feed of some sort.
How Do I Find The Best Stocks To Day Trade
Day trading can be a highly lucrative and enjoyable investment strategy, most especially if you understand the skills needed to be successful and the risks associated with this kind of pastime.
Leverage the resources you have to hand to help you in your trading, such as Financhill’s powerful stock screening features, and the life lessons learned from successful day traders like Oliver Kell and others.
Practice with a demo account first, and only when you feel ready should you start trading with your own money.
#1 Stock For The Next 7 Days
When Financhill publishes its #1 stock, listen up. After all, the #1 stock is the cream of the crop, even when markets crash.
Financhill just revealed its top stock for investors right now... so there's no better time to claim your slice of the pie.
See The #1 Stock Now >>The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.