In this article, we will discuss the 12 best day trading tips for beginners. If you want to skip our analysis, you can proceed to the section highlighting the 5 Best Day Trading Tips for Beginners.
Mastering the Day Trading Concept
Day trading is a strategy where individuals buy and sell financial assets such as stocks, currencies, commodities, mutual funds, exchange-traded funds (ETFs), and cryptocurrencies to make a profit within a day. As prices fluctuate during the session, day traders enter and exit positions to seek profit from small movements in the prices. Day traders usually place multiple trades in one day, which can be placed either for one or multiple financial assets. Cash instruments, derivative instruments, and foreign exchange instruments are the three main types of financial assets that day traders trade. Cash instruments are assets whose value can be directly determined by the markets and are easily transferable. Stocks and bonds are common examples of cash instruments, whereas derivative instruments are a type of contract that takes place at a pre-determined price and date in the future. Examples of derivatives include gold, S&P 500, and oil futures. Foreign Exchange Instruments also known as forex or FX is a financial instrument whose payoff depends on the difference between foreign exchange rates of two currencies. Some of the most traded forex pairs traded globally include EUR/USD, USD/JPY, and GBP/USD. You can also take a look at 15 Best Performing Currencies Against the US Dollar.
It is worth noting that, day traders can make money even if the price of a financial asset is declining. The concept of options trading explains this phenomenon. A call/buy option buys a specific financial asset and day traders use it to capitalize on upward price movements. On the other hand, the put/sell option grants day traders the right to sell an asset without holding it to capitalize on downward price movements in the underlying asset, therefore this phenomenon helps day traders profit even if the price of the financial asset declines. You can also take a look at 13 Best Short Squeeze Stocks To Buy Now.
Insights & Strategies from Experienced Traders
Beginner traders can learn about trading by exploring a variety of educational resources, which offer valuable insights and practical strategies. Some of the most successful day traders who are willing to help beginner traders in their journey include Al Brooks, Lance Breitstein, and Brian Shannon.
Al Brooks is a technical analysis contributor for Futures magazine and has over 30 years of experience in trading futures, stocks, forex, crude oil, and gold. Brooks has published four books titled “Trading Price Action Trends,” “Trading Price Action Trading Ranges,” “Trading Price Action Reversals,” and “Reading Price Charts Bar By Bar” and spreads knowledge through webinars, blog videos, live market commentary, and daily chart analysis on his website. Beginner traders can also purchase Brooks’ 100+ hour video course which covers a range of fundamental topics including how to study chart patterns, identify support and resistance levels, techniques for interpreting price action, and implementing the Modified True Range (MTR), a tool for measuring volatility. Moreover, Brooks delves into more advanced concepts and trading strategies such as swing trading, and scalp trading. Swing trading involves holding positions for several days to weeks. Scalp trading, on the other hand, involves making numerous quick trades within a single day, often holding positions for just a few minutes to seconds. Brooks also guides on how to manage losses effectively and how to control emotions while trading. Al Brooks emphasizes the role of practice in trading to refine the ability to read market patterns, manage risk, and make informed decisions, in one of his videos Al Brooks said:
“The key to practicing as a trader is simply looking at charts and trying to find patterns that are obvious, the more you understand about what the market is doing the better able you are to anticipate what it’s about to do the more money you stand to make, the quicker you recognize the pattern the faster you’ll be able to structure a trade.”
Lance Breitstein is a successful day trader who made over $10.3 million in trading and shares his insights and strategies through various channels, including podcasts, webinars, and YouTube videos. Lance Breitstein addresses various aspects of trading including psychology, risk management, and strategies such as swing trading and scalp trading to become a successful day trader. His videos cover a wide range of topics, including overcoming overtrading by establishing clear entries and exit points, minimizing impulsive trading, revenge trading, and fear of missing out, dealing with losses by averaging out, and identifying profitable trading opportunities using Volatility Index (VIX) and Average Daily Range (ADR) indicators. Overall, Breitstein’s content aims to equip day traders with the necessary knowledge and skills to achieve long-term success.
Brian Shannon is a recognized equities trader, technical analyst, and author, he is also known for his YouTube content and operates a stock trading education company called Alphatrends. In his book “Maximum Trading Gains With Anchored VWAP – The Perfect Combination of Price,” Brian Shannon talks about the concept of Anchored Volume Weighted Average Price (VWAP), and how the VWAP indicator combined with the volume analysis indicator can help traders get an idea of a stock’s liquidity and estimate a fair price that buyers and sellers agree on at a specific time. Anchored VWAP can be set at any chosen point, and offers traders a reference point to gauge trading opportunities and risk levels. Shannon acknowledges that VWAP may not always align with other technical indicators, but by using it with key support and resistance levels, beginner traders can enhance their confidence and identify high-probability trading opportunities.
Top Trading Platform Operators
Some of the largest companies that provide trading platforms for day traders include Interactive Brokers Group, Inc. (NASDAQ:IBKR), Robinhood Markets, Inc. (NASDAQ:HOOD), and The Charles Schwab Corporation (NYSE:SCHW). You can also take a look at 20 Most Valuable Financial Companies in the World.
Interactive Brokers Group, Inc. (NASDAQ:IBKR) operates one of the largest electronic trading platforms globally in terms of daily average revenue trades. Interactive Brokers Group, Inc. (NASDAQ:IBKR) offers users to trade stocks, options, futures, ETFs, futures options, forex, and bonds. On April 16, Interactive Brokers Group, Inc. (NASDAQ:IBKR) reported that its net revenues increased to $1.20 billion from $1.05 billion year over year. Interactive Brokers Group, Inc. (NASDAQ:IBKR) also opened 184,000 new accounts and saw credit balances reach a record high of $104.9 billion. Client equity also experienced a notable 36% growth, reaching $466 billion. Moreover, commission revenue increased by 6%, totaling $379 million for the quarter ending March 31, 2024. Commenting on financial results Nancy Stuebe, Interactive Brokers Group, Inc.’s (NASDAQ:IBKR) Director of Investor Relations said:
“In the first quarter, we added 184,000 new accounts, second only to the meme stock days of the first quarter 2021. We added, in this one quarter, twice the number of accounts we added in all of 2019. New accounts meant more cash in those accounts, which helped raise our client credit balances to a record $104.9 billion. Our client equity was up 36% to $466 billion, meaning we are approaching half a trillion dollars of client assets.”
Recognizing the demand for personalized service and cost-effective solutions, on April 11, Interactive Brokers Group, Inc. (NASDAQ:IBKR) introduced High Touch Prime Brokerage Service and Global Outsourced Trading for selected US hedge funds to manage and expand their businesses. Interactive Brokers Group, Inc. (NASDAQ:IBKR) aims to offer dedicated Relationship Managers and Subject Matter Experts across various departments to cater to the needs of hedge funds. Hedge funds can also access Interactive Brokers Group, Inc.’s (NASDAQ:IBKR) Outsourced Trading desks in Europe and Asia. Interactive Brokers Group, Inc. (NASDAQ:IBKR) aims to become a top broker for hedge funds, offering a range of benefits including global investment opportunities, competitive rates, and advanced trading platforms.
Robinhood Markets, Inc. (NASDAQ:HOOD) provides a user-friendly platform that can be used to trade both stocks and cryptocurrencies. On February 13, Robinhood Markets, Inc. (NASDAQ:HOOD) reported that its total net revenues increased 24% to $471 million from $471 million, and transaction-based revenues increased 8% year-over-year to $200 million, primarily driven by cryptocurrency revenue of $43 million for the three months ended on December 31, 2023. On March 20, Robinhood Markets, Inc. (NASDAQ:HOOD) announced the global release of Robinhood Wallet for Android users. Since its initial launch in 2023, Robinhood Wallet has gained popularity in more than 140 countries. Commenting on the event Johann Kerbrat, General Manager of Robinhood Markets, Inc.’s (NASDAQ:HOOD) crypto division said:
“Launching Robinhood Wallet on Android is a big step forward in our commitment to make crypto more accessible and seamlessly integrated into daily life for millions of people around the world. Whether you’re in Africa, Asia, South America, or somewhere else, Robinhood Wallet is your gateway to the future of finance, and the world of crypto and web3.”
The Charles Schwab Corporation (NYSE:SCHW) is a leading provider of financial services, with 35.3 million active brokerage accounts and 1.9 million banking accounts. Through its operating subsidiaries, The Charles Schwab Corporation (NYSE:SCHW) provides a full range of wealth management, securities brokerage, banking, asset management, and financial advisory services to individual and corporate investors. On April 15, The Charles Schwab Corporation (NYSE:SCHW) reported that its Q1 2024 net revenue increased 6% to $4.7 billion quarter-over-quarter, with $96 billion in core net new assets and total client assets reaching a record $9.1 trillion, up 20% year-over-year. Commenting on the results Co-Chairman and CEO of The Charles Schwab Corporation (NYSE:SCHW) Walt Bettinger said:
“Against an improved macroeconomic backdrop, clients entrusted us with $96 billion in core net new assets – including $45 billion in March alone. At the same time, solid investor engagement contributed to over 1 million new brokerage account openings during the quarter.”
Day trading requires a high level of discipline, risk management, and market understanding. It involves monitoring the market closely, staying updated on relevant news and events, and executing trades with precision and timing. While day trading offers the potential for significant returns, it also carries risks, with that in context here in the list of 12 best day trading tips for beginners.
An executive in a suit on the floor of a trading exchange, with screens of stock prices in the background.
Our Methodology
To come up with the 12 best day trading tips for beginners, we employed a consensus approach. We consulted more than 10 articles on the internet to find the best day trading tips for beginners. Of them, we picked tips that appeared in 50% of our sources. Here are the 12 best day trading tips for beginners.
12 Best Day Trading Tips for Beginners
12. Invest in Knowledge
Before diving into the first trade, day traders should prioritize education to build a strong foundation. They can begin by delving into books by Al Brooks and Brian Shannon. Other books such as “Trading for a Living” by Dr. Alexander Elder, and “Technical Analysis of the Financial Markets” by John J. Murphy also provide in-depth knowledge of the markets and trading strategies. Enrolling in online courses such as those offered by Al Brooks provides practical experience in trading strategies, technical analysis, and risk management. “The Complete Foundation Stock Trading Course” by Mohsen Hassan is also one of the most sought courses available on Udemy, which covers topics such as technical analysis, analyzing chart patterns, and day trading. Subscribing to reputable financial news channels like Bloomberg or CNBC and following market analysis websites can also help day traders stay updated on market trends, events, concepts, and terminologies used by traders. By leveraging these resources and committing to continuous learning, beginner traders can equip themselves with the right knowledge and tools needed to become successful day traders.
11. Practice Strategy
Beginner traders should use demo accounts, which are provided by almost all brokers to practice trading strategies without the risk of losing real money. These accounts offer valuable experience and allow traders to experiment with various approaches, such as trend following, range trading, breakout trading, and risk management. Traders can test their ability to identify trends using technical indicators like moving averages, buying at support levels, and selling at resistance levels. Additionally, they can experiment with breakout strategies, entering trades when the price breaks above or below support levels, and using risk management techniques such as setting stop-loss orders and calculating position sizes based on risk tolerance. By treating each trade as a learning opportunity and analyzing both successful and unsuccessful trades, beginner traders can refine their skills, build confidence, and develop the discipline necessary to become a successful day trader.
10. Start Small
Beginners should start trading with a small capital and spread it among several stocks, bonds, or forex pairs. Investment diversification is a way to mitigate investment risk while gaining exposure to several different assets. Trading with smaller capital translates to smaller potential losses. For example, if a beginner allocates $500 into several assets rather than investing $5,000 in just one asset, any losses incurred would be comparatively less severe, and even if some trades underperform, the impact on the overall portfolio is minimized because gains from other investments can offset losses, offering a buffer against severe losses.
9. Calculate Risk vs Reward
Understanding the risk-reward ratio is important for becoming a successful day trader. Most day traders do leverage trading, which is also known as margin trading. In leverage trading, traders book larger volumes of assets using less investment. For example, with a 50:1 leverage ratio, a trader can use $1 to hold $50 worth of assets. While leverage trading can increase your potential profits, it can also lead to losses, as it can wipe out your entire account balance if the market moves against you. Calculating the risk-reward ratio involves assessing the entry point, stop-loss level, and target price of a trade. First, determine the distance between the entry point and the stop-loss level, representing the potential loss if the trade goes against you. Then, calculate the distance between the entry point and the target price, indicating the potential profit if the trade moves in your favor. Typically, a risk-reward ratio of 1:2 or higher is considered favorable in day trading. This means that for every dollar risked on a trade, the trader aims to make at least two dollars in profit. For example, if traders enter a trade at $50 per share with a stop-loss at $48 and a target price at $54, the distance between the entry and stop-loss is $2, and the distance between the entry and target price is $4. In this scenario, the risk-reward ratio would be 1:2 ($2 risk for a $4 reward). Beginners should learn to calculate potential profit against the potential loss before entering every trade. Al Brooks said:
“You cannot be risking a dollar to make one penny unless you’re very confident of making a profit.”
8. Don’t React Emotionally
Day traders often find themselves swayed by emotions such as fear, greed, excitement, and overconfidence, leading them to make impulsive decisions in opening or closing deals. Success in trading is about behavioral control. Emotions like anxiety, frustration, and desperation can further cloud judgment and disrupt trading outcomes. Victor Sperandeo, a renowned trader also known as Trader Vic said:
“The key to trading success is emotional discipline.”
Dr. Alexander Elder a professional trader expert in technical analysis, and founder of Financial Trading Inc. said:
“The markets are unforgiving, and emotional trading always results in losses.”
Beginner traders should develop emotional control over themselves by practicing mindfulness, maintaining a balanced perspective, implementing disciplined risk management techniques, and strictly following their trading plan. Successful traders don’t let their emotions abandon their strategy. Investing in index funds and strategies such as dollar-cost averaging can also be less emotionally taxing for beginners.
7. Choose a Niche
There are several stocks, currencies, commodities, exchange-traded funds (ETFs), and cryptocurrencies available to trade on platforms. However, beginners are encouraged to focus on a specific niche or market segment. For instance, beginner traders may concentrate on stocks, within a specific niche such as blue-chip companies or industries with stable performance, like healthcare or consumer goods. Whether it’s stocks, forex, or commodities, by focusing on a single niche, one can understand its intricacies, patterns, and dynamics. This approach also helps beginner traders to develop expertise and refine their trading strategies more effectively.
6. Use Stop Loss
A stop-loss order is a risk management feature that traders use to limit potential losses on their trades by exiting at a specific price point. Implementing stop-loss is crucial for managing risk and protecting capital. Additionally, using technical indicators such as moving averages or volatility metrics can help identify appropriate stop-loss levels based on market dynamics. Beginner traders should always use a stop-loss for each trade to limit losses and prevent emotional decision-making. It’s better to exit a losing trade early than to incur significant losses by holding onto it. A beginner trader should always know what he or she can afford to lose in one day and whenever you hit this point, exit your trades and take the rest of the day off. Bernard Baruch said “In trading and investing, it’s not about how much you make, but how much you don’t lose”.
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Disclosure: None. 12 Best Day Trading Tips for Beginners is originally published at Insider Monkey.
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