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Day Trading – Considerations for new Traders

January 28, 2016

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Traders who day trade get in and out of positions in a single trading day, and often during a single trading session. If you’re going to day trade, you should know the product you’re trading like the back of your hand. Also, consider shopping around for different brokers, as some brokers specialize and offer tools that provide value for specific types of day traders.

Day trading stock goes back to the early days in the markets. Stock itself generally has the most cost associated with it, but it’s also fairly simple. If you day trade stock, you have to know the daily market schedule. In the US:

  • Stock Market opens 9:30 am EST
  • Stock Market closes 4 pm EST
  • Economic news generally starts at 8:30 am EST
  • Specific stocks can have random news events to consider

Forex (currency) is also an attractive product to consider. It’s regulated locally and not subject to Day Trading Rules that stocks and options are. You have access to leverage. The forex market is open 24 hours daily from the Sydney Open until the New York Close on Friday. It’s very liquid, technically based, and most of the news is planned (economic calendar). Although you can trade currency 24 hours a day you’ll need to learn the banking hours for each major currency. In Eastern Standard Time (New York).- Sydney Banks 5 pm – 2 am EST- Tokyo Banks 7 pm – 4 am EST- London Banks 8 am – 5 pm EST- New York Banks 3 am – 12 noon EST

Day trading futures (commodities) is very popular for traders who are interested in this style. You can focus on index-based futures (e-minis), commodities-based futures (oil, natural gas, etc.), metals-based futures (gold, silver), volatility futures, bond futures, currency futures, and others as well. Liquidity is a major consideration and thus the e-minis are a popular product. The futures market is accessible 24 hours daily through the Globex. Commodities pits can drive volatility, in specific markets so make sure you know when your products are going to be impacted by open outcry pits.

Day trading options is an attractive product to consider. Options contracts are traded on equities, indexes, ETFs, and futures,  and can have different rules depending on your account type, location (country), and the specific product you trade. There are American and European (cash-settled) options. Options on futures are regulated differently than options on other products and thus different day trading rules may apply. Options have different factors impacting the price – specifically time and volatility – and thus can be more complex than trading the other products.

The mindset of a day trader is one of the most important factors. Generally, trading risk is defined by the trader. Some day traders are willing to position size more aggressively and use leveraged products because they’re going to be watching their trades. Consider that whenever you increase position size and use leverage: you are taking theoretical risks that you have to compensate for in your expectations and rules. Risk control is the most important part of any trading system. One key risk component is called session risk. Session risk is the total risk you are taking from the moment you start trading until you are going to close the position. Set stop losses on your trades – and your sessions. You should have a point that you are no longer going to chase trades on any given day – to prevent emotional trading. Day trading is a style that every trader should consider and try.

Until you develop experience doing something, keep an open mind as to whether it will fit in your business or not. Being a day trader does not mean that you cannot trade other time frames or invest. Having the skills to day trade is a nice advantage for any investor so that you can jump in and take advantage of volatile days in the market and news events.

Advantages

  • You are in front of the market while you are in a trade to control your risk and exit.
  • You can react to news quickly.
  • You have access to different margin rates at specialized brokers during a trading session.
  • No overnight risk.
  • Technically driven.
  • News can be planned for – to avoid or to trade the volatility impact.

Disadvantages

  • If you’re manually trading – you will need to be in front of the market.
  • Miss out on overnight time and volatility strategies.
  • Can turn into a job if you have the wrong mindset.

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All investing and trading in the securities market involves a high degree of risk. Any decisions to place trades in the financial markets, including trading in stocks, options or other financial instruments, is a personal decision that should only be made after conducting thorough independent research, including a personal risk and financial assessment, and prior consultation with the user’s investment, legal, tax and accounting advisers, to determine whether such trading or investment is appropriate for that user.

4 Replies to “Day Trading – Considerations for new Traders”

  1. Avatar Jeffrey Ludwig says:

    Day trading was what really helped me to develop a “trader’s mindset,” because it necessitates one! Fear, doubt, hesitation, poor entries, poor trade management, all will show up immediately in your daily P/L. It’s a challenge, but a worthwhile one. Even for traders who can’t or don’t want to day trade on a regular basis, it’s worth at least practicing because it gives you the opportunity to grow your skills so quickly.

  2. Avatar Dianne Sterling says:

    Matt: I am a beginner who took your 3-day class in New York in Feb.2015 and started the online classes on March 2015. Thanks, this writing was helpful and encouraging. When I start trading currency in Forex, is it best to use Think and Swim OR Tackle Trading? I can read your helpful blogs in Tackle Trading!
    Also, while following one of your trade, you set STP at 50,000 for 1/2 of one standard lot. What is this equivalent to in USD?

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