Day trading can be an attractive idea.
You can set your hours, work on the beach, and, more importantly, make money. But surely, if it were that easy, wouldn’t everyone would be doing it?
Like most things, the reality of day trading is very different from the rosy picture that most people have in their heads.
So the question is, “can you really make money day trading?”
What Is Day Trading?
The classic day trader works the stock or foreign exchange (forex) markets buying stocks (or taking positions) and then selling them again – all within a single trading day.
Because of their strategy, day traders aren’t really “investors.” Instead, they use market volatility to earn income, and the underlying performance of the company or currency that they buy has less relevance than the opportunity to use movements to make a profit.
Back in the day, this trading style was only available to institutional investors because only large finance houses had access to real-time stock market information. As more products like stock scanners have become available to retail buyers, the number of people involved has increased.
Day trading contrasts sharply with investment because investing involves holding onto stocks or positions for a longer period of time. With time, the hope is that the invested money will create profit from capital growth or dividend income.
Day traders also fall into different trading styles and strategies. Some day traders trade in the trending direction (trend trades) of the current price movement, others will do the opposite (counter-trend traders), and yet others (range traders) will only trade when stocks fall within a range of values.
Can Anyone Do It?
So can anyone become a day trader?
Well, the answer is a qualified “yes.”
As previously mentioned, the software, information, and brokerage accounts are widely available to the average trader – but there are some caveats.
First of all, you’ll need some money (that you can afford to lose), and just like gambling, the more money you play with, the more money you can make.
That being said, if you just want to test the water, most dealers have test accounts that allow you to set up dummy trades to gauge how your strategy will work.
Day trading for beginners isn’t always easy, and one reason for this is it takes organization and discipline.
You have to have the ability to separate yourself emotionally from your positions, whether they are good or bad, and stick to your strategy.
Also, it’s important to remember that in reality, most day traders don’t make their money at a beach bar in Bali. In fact, most day traders spend hours in front of their computer screens doing their research to ensure they have the information they need to make effective trades.
What Do You Need To Become A Successful Day Trader?
The first and most important thing that any aspiring day trader needs is education.
We’re not talking about a formal university or college degree, but rather an education that shows you exactly how to build a strategy, how to assess trades, and, more importantly, what to do when things go wrong.
You’ll need some tech backup too.
Although anyone can trade through an ordinary broker account, these can be a little expensive if you are simply using a retail version. If you’re serious about day trading, you’ll need to find an account that is low on fees and allows unlimited trades in a day.
You may also want to invest in technology like stock scanners or portfolio trackers. Speed is your friend because real-time intelligence favors those with fast equipment. Some of the most successful day traders work on high-powered computers – so you may need to upgrade your PC or MAC.
You’ll also want a very stable and fast internet connection as milliseconds matter when you are day trading. An outage of a few seconds in your connectivity can mean the difference between a good or bad day.
How Much Do Day Traders Earn?
This is a little bit of a “piece of string” question because the answer is “it depends.”
Most people who start retail day trading lose money, but there are good reasons for this. People who lose money generally don’t do their research, don’t invest time and effort into their new occupation, and find themselves letting emotion get the better of them.
In short, whether you are day trading full or part-time, you have to treat it like a job.
Even very experienced day traders can indeed have a bad day at the office, which is why we say you have to have a pot of money that you are prepared to lose. If you genuinely use the money you can afford to lose, you have a much better opportunity to make money because your emotions won’t hijack your decisions.
But despite all the bad news, experienced traders with a decent amount of cash on hand can make a very healthy income. And you don’t need to be a superstar of Wall Street to actually exceed the income you make in a “normal” job.
Even part-time traders running a day trading operation alongside their normal job can make good money, as long as they can make trades during their “real job” when the markets are open.
Full or part-time day traders can make very good money indeed, but this is more often than not directly related to the amount of effort they have put in.
As a starting point, why not set up a dummy account with a reputable trader and start developing your own strategy. With the proper research and preparation, you may find you have a skill for day trading you never knew you had!