Education
BY TIO Staff
|January 4, 2023
There is a bit of speculation on whether day trading makes sense as a strategy. This short-term trading style has its perks but is it feasible to practice for an extended period of time? Can it provide traders with sizable profits? Is it riskier than other trading styles?
In this article we tackle some of the most frequently asked questions about day trading. We learn about the pros and cons, and offer some basic tips to get started and help you make safe decisions ‒ in the case where you decide you want to give it a go.
Content:
What is Day Trading?
- How Does Day Trading Work?
- Pros of Day Trading
- Cons of Day Trading
Basic Tips to Get Started Day Trading
- How to Succeed as a Day Trader
Questions about Day Trading:
- Is day trading actually profitable?
- Can you make a living from day trading?
- Is there a downside to day trading?
- Is day trading better than investing?
- Why is day trading so hard?
- Why do most day traders fail?
- Can a day trader be a millionaire?
- What is the average income of a day trader?
- Is day trading worth it?
What is Day Trading?
Day trading is a type of short-term trading style that involves buying and selling stocks, currencies and other securities within the same trading day. It differs from long-term investing in that it only holds positions for a few hours.
How Does Day Trading Work?
Day trading is a type of investing where you buy and sell instruments within the same day. The goal is to make money by buying low, selling high, and taking advantage of changes in market prices.
When you day trade, you don’t hold onto your investments for long periods of time. You’re looking to make short-term gains on each purchase and sale. Day traders typically divide up their capital into smaller units. This way they can buy and sell more assets with each trade.
In order to day trade, you must have a good understanding of how trading works, as well as your own brokerage’s rules. You also need to invest in the right tools.
Pros of Day Trading
- Low barrier to entry.
- You can take advantage of short-term price fluctuations.
- You don’t need a lot of capital to get started.
- The possibility to profit in a short period of time.
Cons of Day Trading
- It’s risky. You can lose a lot of money fast.
- You need to place many trades in order to make significant income from small price changes, which means more money invested.
- You need to pay attention to the market at all times. This could mean you might miss out on other things going on in your life.
Basic Tips to Get Started if Day Trading Makes Sense to You
It is possible for day trading to lead to a profitable profession if you take the right steps. However, it might be difficult for beginners, especially those without a solid plan of attack. Frankly, even the most experienced day traders can run into trouble and lose from time to time. So here are a few basic tips to get you started:
Do You Research
To get started day trading, you will need to do your research. This means learning about the market, looking at charts and graphs, reading about other traders, and making educated guesses about what might happen next. The more you know about the market and how people trade, the better your odds of success will be.
Start Small
It also helps to start with small trades until you get used to the process of day trading. The biggest risk when it comes to day trading is losing money fast and having to pay fees on top of that loss. If you start with small trades, then even if things don’t work out well right away, you won’t be out much money or have a lot of losses stacked up against your account balance.
You may want to practice before putting real money into an account, by using a risk-free demo account like the one we offer at TIOmarkets.
Control your Emotions
Don’t get emotionally attached to your trades. This is one of the most common mistakes that new traders make—they get their hopes up about a stock they’ve invested in and end up getting disappointed when things don’t go their way. The key thing here is not to let your emotions affect your judgment when making investment decisions (or even just talking about investing). Never let anyone else influence what stocks/currencies/etc., you buy or sell either!
Be Patient
Be patient! Day trading doesn’t always mean quick profits right away—if anything, it usually means losing money at first until you get used to how things work in this market environment
Strategies for Day Trading
You can implement a number of intraday strategies, or choose one and stick with it.
News/Event-Driven Trading Strategy
News-based or event-driven trading is a type of trading that occurs in response to actual or expected events, such as company earnings reports, political events or natural disasters.
Scalping Strategy
Scalping is a strategy that involves making small profits on many trades by taking advantage of small price changes. These trades open and close quickly, within minutes or seconds.
Range Trading Strategy
When range trading, traders apply pre-determined support and resistance levels in prices to make their trading decisions.
High-Frequency Trading Strategy
Although not very relevant to most intraday retail traders, High-Frequency Trading (HFT) is worth mentioning since it is a strategy that has benefited many large investment companies, banks, hedge funds, and institutional investors. Through the use of computers, large amounts of trades and orders are executed rapidly.
Does Day Trading Make Sense ‒ FAQs
We’ve gathered a number of frequently asked questions that many beginner traders ask when they are trying to decide whether day trading makes sense for them to try out.
FAQ #1 ‒ Is day trading actually profitable?
Day trading is a popular way to trade, but is it really profitable? It’s true that you can make money day trading various instruments, but you shouldn’t expect the same kind of windfall short term as someone who invests long term. The truth is that day traders are more likely to lose money than gain it.
However, there are many experienced and disciplined traders who manage to make a decent profit from day trading despite ‒ or because of ‒ the volatility and risk of day trading.
FAQ #2 ‒ Can you make a living from day trading?
Yes, you can make a living from day trading, but it’s not easy.
That’s because the market is extremely volatile and you have a lot to learn. It takes dedication and patience to become a successful full-time trader.
FAQ #3 ‒ Is there a downside to day trading?
To day trade successfully, you may need to invest significantly in technologies and set up systems. These will help you keep up with the competition, such as hedge funds, high-frequency traders, and other expert traders who invest millions in order to have the upper hand in the market.
FAQ #4 ‒ Is day trading better than investing?
Day trading is a form of investing that involves buying and selling securities (such as stocks) within the same day. It often involves using sophisticated computer applications. It’s different from long-term investing in that you are looking to make money on price fluctuations within a single day.
The main difference between day trading and long-term investing is that the former involves buying and selling shares on a daily basis. The latter involves holding onto your investment for an extended period of time (typically more than a year). The goal of both strategies is to generate returns from either profits made from short-term price changes or dividends paid out over time.
Day traders are typically more active in their trading. Investors, on the other hand, often rely on financial advisors for guidance about which assets to buy and sell. Whether one is better than the other depends on you; on how active, disciplined, patient and on top of the market you want to be.
FAQ #5 ‒ Why is day trading so hard?
Day trading can be hard because financial markets can be very volatile. This makes it hard to manage and balance your different trades. The market is always changing and it’s not always possible to predict the direction the market may go. This makes it hard to know for sure what may happen after you’ve made a trade.
Day trading can be hard because it also involves a lot of time management. It’s not just about buying and selling assets. You need to make sure that you’re prepared for every move; whether it’s buying or selling, and whether it’s in the morning, afternoon, or evening.
Make it easier on yourself by focusing on the big picture. Don’t get bogged down in trying to predict every tiny detail of your strategy.
FAQ #6 ‒ Why do most day traders fail?
There are several reasons many day traders fail. Most of these reasons fall under the same umbrella: they do not prepare properly.
Common mistakes of day traders are:
- Not setting up stop-loss orders
- Not conducting proper analysis or research before placing a buy or sell order
- Not following the trend
- Following day trading tips and rumors without analysis
- Rushing to book profits
- Averaging on long positions
FAQ #7 ‒ Can a day trader be a millionaire?
With discipline and patience it is possible to make a lot of money day trading. However, it is also possible to lose a lot of money if you don’t apply certain risk management techniques.
FAQ #8 ‒ What is the average income of a day trader?
You may be asking what the average income of a day trader is to help you calculate what you could be making every month, or year. You may want to know what most day traders so you can have a goal in mind to reach for.
The average annual salary of day traders in the US alone is around $100K, or $56 per hour. The top 10 percent of day traders make almost $200K whereas the bottom 10 percent of day traders make under $70K annually.
FAQ #9 ‒ Is day trading worth it?
After all this, is day trading worth giving it a try?
In every trade there are winners and losers. Someone has to win and someone has to lose. To have better chances of being on the winning side then one must apply best practices, risk management, and do their homework!
To Day Trade or Not to Day Trade, That Is The Question
It’s important to have a full picture of the risks and disadvantages of a trading style before diving into it. Having said that, day trading can yield good profits for those who are willing to put in the work. With time and investment in the appropriate systems you can gain a better advantage at possible profits.
You can start with a small account; TIOmarkets offers accounts with as low as $50 startup. Learn the risks, be patient – one loss is not the end of the world – and manage your emotions.
At TIOmarkets we aim to keep you fully informed on the advantages and disadvantages of trading. Our live chat 24/5 service is happy to guide you through the ins and outs of placing trades and managing your account.
Risk disclaimer: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Never deposit more than you are prepared to lose. Professional client’s losses can exceed their deposit. Please see our risk warning policy and seek independent professional advice if you do not fully understand. This information is not directed or intended for distribution to or use by residents of certain countries/jurisdictions including, but not limited to, USA & OFAC. The Company holds the right to alter the aforementioned list of countries at its own discretion.
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TIO Staff
Behind every blog post lies the combined experience of the people working at TIOmarkets. We are a team of dedicated industry professionals and financial markets enthusiasts committed to providing you with trading education and financial markets commentary. Our goal is to help empower you with the knowledge you need to trade in the markets effectively.
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