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Interested in getting started as a financial markets trader? Well, then you should know that day trading is one of the most popular types of financial markets trading strategy around.
Although many advanced traders use day trading strategies, most beginners can easily master various day trading strategies, too. Read on for more information about what day trading is, day trading for beginners and how to get started.
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What is Day Trading?
Simply put, “day trading” is a phrase used to describe any trading strategy that does not involve taking overnight positions. Day traders make sure that all of their transactions are opened and closed within the same trading session or day.
The primary advantage of day trading is that you avoid exposure to unanticipated market movements that can take place overnight when you are not closely watching the market. This lets you get a good night’s sleep as you prepare to take on the market when it next opens in your locale.
Day Trading Strategies
Day traders generally seek to profit from small and frequent market moves. They usually also aim to consistently implement an efficient and effective day trading strategy that can use tools like price charts and technical indicators to forecast short-term market movements as accurately as possible.
A variety of trading strategies can be lumped into the broad day trading category as long as they do not involve holding positions overnight. Five examples are mentioned below.
Scalping is a popular day trading strategy that aims to take numerous small profits on trading positions with very short durations. Scalpers must have ultra-fast reaction times and often enter and exit trades within seconds or minutes. They also need to time their entry levels well, choose high probability trades in highly liquid and volatile assets, and quickly cut losses.
Scalpers also do best with tight dealing spreads, quick order executions and minimal order slippage. They often closely monitor very short-term tick charts for predictive price patterns like those shown below.
Day trading for beginners often starts here because you can practice scalping with a demo account, try it with real money and expand your investments over time.
A trade entry box for the EUR/USD currency pair showing a tick chart. Source: MetaTrader 5.
Some day traders with deep pockets and a substantial risk appetite might use news trading strategies that aim to benefit from the highly volatile markets often seen shortly after key news releases. News traders usually monitor economic calendars and news feeds for key data releases or news events.
News trading strategies can be based on either fundamental or technical analysis. They also generally require a trader to watch the market just before a risk event to observe key support and resistance levels that allow the trader to act quickly once the news is out.
Trading Reversals from Oversold and Overbought Levels
The Relative Strength Index and the Stochastic Oscillator are momentum indicators that day traders can use to signal when markets are overbought or oversold and hence ripe for a reversal. Day traders typically sell into overbought markets and buy into oversold markets. This is typically an active trading strategy that requires quick reactions to execute trades at the right time and level.
A pivot point is a technical analysis indicator computed by taking the average of the high, low and close prices from the previous day. They are used like support and resistance levels when trading, with day traders typically aiming to buy ahead of pivot points below the market and sell ahead of those above the market.
Day traders often watch price charts to identify patterns that have predictive value. Once the market breaks out of the pattern, it can set up an objective that suggests how far the market might continue to travel in the direction of the breakout. Once a breakout occurs, day traders will typically set up a trade in the direction of the breakout and then aim to close the trade near the computed price objective.
Day Trading Charts and Patterns
Many day traders generate price charts for the assets they actively trade or considering taking a position in. They might also draw trend and retracement lines on the charts to suggest target levels and determine where support or resistance points are likely to show up.
Day traders also often superimpose technical indicators over the price action or display them in the indicator box below the price chart. For example, the image below depicts a 15-minute candlestick chart of the EUR/USD exchange rate. It also shows the 10-period simple moving average superimposed over the exchange rate in red and the 14-period Relative Strength Index (RSI) plotted in blue in the indicator box below.
Day traders also peruse charts for classic patterns that have a predictive value that often includes useful measuring objectives once the market breaks out of the pattern. Popular chart patterns used by day traders include:
- Head and shoulders tops and bottoms
- Double and triple tops and bottoms
- Saucer tops and bottoms
- Flags and pennants
Schematic diagrams are often used to depict the theoretical shape and behavior of these patterns as shown below.
A schematic drawing of a head and shoulders top pattern poised at its neckline to breakout to the downside.
Day Trading Tools
Although day traders use a variety of strategies, they often take advantage of similar tools to optimize their chances of success. Some of the more useful trading tools are described in detail below.
Day traders often plan their trading week around an economic news calendar that will list all major economic data releases, central bank policy statements and benchmark interest rate announcements, national elections and central bank official speeches.
Such key events can affect the financial markets considerably. They can also cause the short-term breakdown of a key tenet underlying technical analysis, so any day trader should be aware of their release date and time.
Economic calendars generally list the likely impact of an event, as well as the expected and previous results for key data releases. Significant deviations from the market’s consensus can cause substantial volatility as the market rushes to discount the new information.
Economic calendar. Source: ForexFactory.com
A trading platform is used to execute transactions online. A good trading platform will generally incorporate technical analysis and charting functions, have order entry and position management abilities, and display a high-quality financial news feed that day traders often need to watch just in case any market-moving news breaks.
Most trading platforms have real-time prices displayed on their charting interface and a trade window so you can trade directly from charts. An example of a popular and sophisticated online trading platform used to trade forex, precious metals and other assets is MetaTrader 5 from MetaQuotes.
The MetaTrader 5 online trading platform. Source: MetaTrader5.
Keeping an accurate record of your trades throughout the day can provide valuable insight into how your trading is going and where improvements need to be made. When journaling your trades, you should explain why, where and in what size you initiated a trade. You can also add the signals you used and what results you observed, including whether the trade was profitable and to what extent.
A trade journal helps you review your day trading mistakes so you can hopefully avoid repeating them. Some day traders keep a journal on paper or in a spreadsheet, while others might use trade journal software like Edgewonk’s.
Sample trade journal kept using Edgewonk’s software. Source: Edgewonk.
Best Stock Screeners for Day Trading
Stock screeners consist of a tool used by traders and investors to filter stocks based on specific parameters and user-defined metrics. Screeners can be free of charge on certain websites or can be subscribed to as a service.
Stock screeners let you filter stocks by their price, market capitalization, price/earnings ratio, average volume, 5-year return and return on investment (ROI) to name just a few of the parameters you can choose. Benzinga has compiled a list specifically for day traders of the best stock screeners, so you can choose the one that best fits your needs.
Best Online Brokers for Day Trading
Benzinga has compiled a list specifically for day traders of the best online brokers below. You can compare the services each broker offers to find the one that seems to suit you best given the markets that you wish to day trade and your available trading capital.
Webull, founded in 2017, is a mobile app-based brokerage that features commission-free stock and exchange-traded fund (ETF) trading. It’s regulated by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA).
Webull offers active traders technical indicators, economic calendars, ratings from research agencies, margin trading and short-selling. Webull’s trading platform is designed for intermediate and experienced traders, although beginning traders can also benefit.
Webull is widely considered one of the best Robinhood alternatives.
- Active traders
- Intermediate traders
- Advanced traders
- No account maintenance fees or software platform fees
- No charges to open and maintain an account
- Intuitive trading platform with technical and fundamental analysis tools
- Does not support trading in mutual funds, bonds or OTC stocks
SoFi’s mission is simple: to help reach clients like you reach their financial independence and realize their ambitions. SoFi knows that this independence comes from making decisions that help your money start to work for you in the long run. The brand helps individuals make these decisions through personal financial products such as personal loans, student loans and automated and active investing.
The brand additionally provides in-person experiences such as educational and networking events, personalized guidance from experienced financial planners and one-on-one advising with professional career coaches. SoFi’s services have been highlighted in outlets such as Forbes, Medium, and CNBC’s Make It.
- IPO Investing
- Mobile Investing
- U.S.-based customer service
- Highly-rated mobile app for iPhone and Android
- Only available in the U.S.
Moomoo is a commission-free mobile trading app available on Apple, Google and Windows devices. A subsidiary of Futu Holdings Ltd., it’s backed by venture capital affiliates of Matrix, Sequoia, and Tencent (NASDAQ: FUTU). Securities offered by Futu Inc., regulated by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA).
Moomoo is another great alternative for Robinhood. This is an outstanding trading platform if you want to dive deep into smart trading. It offers impressive trading tools and opportunities for both new and advanced traders, including advanced charting, pre and post-market trading, international trading, research and analysis tools, and most popular of all, free Level 2 quotes.
Get started right away by downloading Moomoo to your phone, tablet or another mobile device.
- Cost-conscious traders
- Active and Advanced traders
- Over 8,000 different stocks that can be sold short
- Access trading and quotes in pre-market (4 a.m. to 9:30 a.m. ET) and post-market hours (4 p.m. to 8 p.m. ET)
- No minimum deposit to open an account.
- No chat support
It seems like new digital investment management platforms are sprouting up left and right, and for good reason — there’s a great need for easy, straightforward investment management that doesn’t cost an arm and a leg in fees or to get started. If you’re new to investing or an old hat who wants to make the switch to a virtual manager, deciding which features you need can be confusing if not overwhelming.
If you want a no-frills financial management platform, Axos Invest (formerly WiseBanyan) takes a traditional but sophisticated approach to automated online investing.
- Traditional investors trying out an automated investor for the first time
- New investors that want to take a hands-off approach to portfolio management
- Straightforward automated investing
- Relatively low account minimum and automated investing fee
- A solid roster of available investment account types
- Not a stand-out from other services if you’re someone who likes all the bells and whistles with your digital financial platform
- No direct relationship with a human financial advisor
This latest groundbreaking technology is IBKR GlobalAnalyst, a new trading tool that helps investors compare the rate of PEG or price-earnings growth valuations and provide more immediate and comprehensive financial metrics of stocks, globally.
Recognizing that stock selection can be challenging for investors to compare the valuations of domestic and international stocks, Interactive Brokers created GlobalAnalyst to offer investors a simple, yet powerful tool to easily evaluate investment opportunities around the world.
Using GlobalAnalyst, investors can search for stocks by region, country, industry, market capitalization and currency to uncover undervalued stocks worldwide. The resulting table displays the current market and financial metrics, including the PEG Ratio. The PEG Ratio is the PE ratio divided by the three-year compound earnings growth rate, and smaller PEG Ratios typically indicate undervalued companies.
- Price earnings growth valuations
- Easily evaluate investment opportunities
eToro is a broker that offers access to over 25 of the world’s most popular cryptocurrencies, forex and over 1600 stocks. They have a few unique education and useability tools. Traders can begin buying and selling in as little as 10 minutes.
eToro’s unique CopyTrader feature allows new investors to “copy” the buy and sell orders of professional investors, while the company’s eToro Club feature provides investors with a range of additional education tools and resources.
- Traders looking for an easy-to-use platform
- Traders who want to practice their trades using a virtual account before entering the market
- Simple platform that is easy to master
- CopyTrader feature that allows new traders to copy the same strategies used by professionals
- Virtual dummy account that gives you $100,000 to practice trades
- High non-trading fees
Final Day Trading Tips
When the trading day is over, your success as a day trader will depend on what strategy you operated and how disciplined you were in implementing it. Also remember that complexity is often not advantageous when it comes to formulating a strategy since the easier your strategy is to implement in practice, the more likely you are to be able to profit from it during fast markets and over multiple assets.
In most cases, technical analysis plays a key part in your day trading strategy because of its notable success in forecasting short-term market moves. Technical analysis can even be used to validate potential trades.
Day trading for beginners involves patiently developing a strategy that works for you. Plan how you intend to manage your risk. Spend your money prudently. These are key elements of success you should keep in mind when organizing your day trading business.