In this guide

How to Day Trade

Day trading is when traders buy and sell an asset in the space of a single day to take advantage of price changes. Find out everything you need to know about day trading in this handy guide.

By:

Updated: Sep 12, 2024

Listen

Day trading is one of the most popular strategies in the world of investing, particularly for anyone who enjoys fast-paced decision-making and the thrill of short-term market movements.

At Invezz, our team have years of experience in financial markets, especially when it comes to day trading. We understand the complexities involved and in this guide, you’ll find clear, practical advice to help you succeed.

We’ll explore the fundamentals of day trading, explain why it attracts so many investors, and outline the strategies needed to succeed in this environment. Our guide covers it all, from strategies to understanding market dynamics and the art of timing and risk management.

Find an online broker to trade with

Before you even start you’ll need a broker like the best day trading platforms below. Our team of analysts have tested a wide variety of trading platforms and have selected these because of their low fees and general ease of use. Simply click on one of the links to get involved.

We found 23 crypto platforms for users based in

Sort by:

How to day trade – a step-by-step guide

For beginners, following a structured approach to minimize risks and build a solid foundation is the best way to start day trading. Here’s a step-by-step guide to help you start.

1. Assess your suitability for day trading

Day trading is intense and demands quick decision-making, risk tolerance, and a commitment to learning. Assess whether you are ready to handle the stress, work long hours, and continuously adapt to market changes.

Further in this guide, you will find tips and information to help you decide if day trading is right for you.

2. Set a trading budget and risk management strategy

Only trade with money you can afford to lose. Set a clear budget and define a risk management strategy, such as risking no more than 1-2% of your capital per trade.

For example, with a $1,000 account, limit your maximum loss per trade to $10 – $50 to protect your investment.

3. Choose your trading hours

Since day trading requires plenty of self-discipline, you need to set the hours that you want to trade within yourself; after all, day trading doesn’t mean trading all day.

This can help prevent you from constantly checking the latest prices, and it can provide structure and organization to your routine which will aid objective decision-making.

4. Select a day trading broker

Pick a broker with a user-friendly platform, low fees, and reliable customer support. Day trading involves frequent transactions, so choose a broker with competitive spreads and commissions to minimize costs.

Platforms like eToro, IG, or Plus500 offer demo accounts to test before committing real funds.

5. Identify your preferred Markets

Next, you need to choose some assets to focus on. When day trading, it is important you are informed about the financial instrument you are attempting to flip for a profit.

Volatile assets like cryptocurrencies and certain stocks are popular for day traders, while the forex markets are also frequently traded in conjunction with leverage to maximize the small price movements.

6. Master technical analysis tools and techniques

To accurately project market behavior and make profitable trades as a consequence, you need to conduct technical analysis and due diligence for each asset.

Chiefly, this involves familiarizing yourself with reading a candlestick chart and having a firm grasp of the various metrics you can calculate using it.

7. Implement risk controls with stop loss and take profit orders

Protect your capital with stop-loss orders to automatically close trades that move against you. A take-profit order can lock in gains at a set level. For example, if you buy a stock at $100, setting a stop-loss at $95 and a take-profit at $110 can help manage risk and reward.

8. Begin trading and monitor your performance

Once you feel confident, start trading with a small amount and gradually increase your positions as you gain experience. Keep a trading journal to track your trades, analyze performance, and learn from both successes and mistakes.

It’s important to continue learning and keeping good records of your trading history. Only by analyzing your prior trades will you be able to spot mistakes and take action early

What is day trading?

Day trading is the practice of making regular trades of various assets in pursuit of profit and closing all positions by the end of each day. Volatility is key to day trading because it provides the rapid price fluctuations necessary to generate trading opportunities.

Essentially, day traders conduct technical analysis on a chosen asset – such as a stock, cryptocurrency or currency – and attempt open and close trades in the space of a day at prices that create returns. Day trading can involve both long and short positions, and the brief timeframe can result in dramatic gains and losses.

Whereas long-term investors focus on a stock’s fundamentals such as its balance sheet credentials, day traders are much more concerned about market mechanics, investor sentiment, and technical indicators. These metrics allow them to gain an accurate read on the market, generating predictions and knowing when to lock in and close a trade.

The key thing to remember is that day traders are more interested in how an asset is received and consequently valued by the market, rather than how much it is truly worth in objective terms. This is why day traders can make money by trading poorly performing stocks, while long-term investors with the same stocks would likely experience a gradual decline in their portfolios.

What tools does a day trader require?

To become a successful day trader you’ll require a few tools and resources to make informed decisions and execute trades efficiently. Below are a few of the most essential tools that every day trader should consider.:

Trading software. Platforms like MetaTrader, TradingView, and Thinkorswim offer essential features like charting tools, order types, and direct market access. Use our guides on the best MT4 brokers or the best TradingView brokers to learn more.
Technical analysis tools. Most brokerage platforms will come preloaded with indicators such as Moving Averages, Relative Strength Index (RSI), Bollinger Bands, and MACD. These can help identify trends, entry and exit points, and overbought or oversold conditions.
Automated trading systems: Expert Advisors (EAs), Trading Bots, and algorithmic trading scripts can automate trading strategies based on predefined criteria. We have detailed guides on the best crypto trading bots, the best forex EAs, and the best AI trading robots.
Backtesting software. Backtesting is essential in improving and testing your strategies. Tools like TradingView, MetaTrader, and Amibroker let you test your strategies against historical data to evaluate performance and refine your approach.
Journaling tools. One of the best ways to succeed with day trading is journaling. Platforms like TraderSync, Edgewonk, and Tradervue help you keep a detailed record of every trade. Journals provide insights into your trading behavior.
Financial news sources. Trading the news is a popular day trading strategy. Real-time news from Bloomberg, Reuters, and CNBC is crucial for staying updated on economic events, market-moving news, and announcements.
Social media platforms: Twitter (FinTwit), StockTwits, and Reddit communities provide real-time sentiment analysis, opinions, and emerging trends. You can gauge market sentiment and potential volatility triggers by following experts.
Screeners: Use the best crypto screeners and the best stock screeners to keep track and filter assets based on parameters like volume, price action, volatility, and more. A good screener can save massive amounts of time when trading throughout the day.

Day trading strategies

There are lots of strategies you can use while day trading to take advantage of short term price movements. Here are a few of the most popular trading strategies used by beginner day traders.

Scalping

Scalping perhaps is what most people think of when it comes to day trading. Scalping involves making dozens or even hundreds of trades in a single day to ‘scalp’ small profits from each trade.

When scalping, traders focus on short time frames such as 1 to 5 minute charts and rely on technical indicators and price action to identify entry and exit points. Since profits per trade are minimal, traders often use leverage to amplify returns, increasing both potential gains and risks.

Range trading

Markets generally range approximately 70% of the time, which makes range trading a popular strategy. When range trading you identify key support and key resistance. You then buy when the price reaches the support level and sell at the resistance level.

Range traders can use tools like the Relative Strength Index (RSI) and Stochastic Oscillator to identify overbought or oversold conditions that may indicate reversal points within the range. Other range traders simply use price charts to identify a range.

News trading

Economic news is released throughout the trading day and often injects volatility in the markets. Things like earnings reports, economic data press releases, and even geopolitical events can impart markets.

New traders monitor financial news platforms and economic calendars to anticipate and react to news driven price movements.

For example, a better than expected jobs report can lead to a bullish market reaction in the USD, while a poor earnings report may cause a sharp sell off in a particular stock.

High-frequency trading (HFT)

High frequency trading uses advanced algorithms and powerful computers to execute trades within milliseconds. HFT is generally conducted by firms with large amounts of capital and knowledge behind them. However, day traders can use trading robots to participate in HFT trading.

Trend trading

One of the most popular trading strategies is following the trend. This simply involves buying to selling in the direction of the prevailing trend. For example, if a stock is moving higher, a trend trader can buy on dips or pull backs and follow the trend.

This strategy can also involve the use of trend indicators such as moving averages, Moving Average Convergence Divergence (MACD), and the Average Directional Index (ADX) to confirm trends and identify potential entry and exit points.

Arbitrage

Arbitrage is a complex and sophisticated day trading strategy that involves taking advantage of price differences in the same asset across different markets. For example, a stock could be listed on two different exchanges with a slight price difference.

Arbitrage day traders simultaneously buy at a lower price and sell at a higher price to capture the price difference. This type of trading requires specialed software and fast execution and is often automated.

Key factors to consider

Trading fees

Because of the sheer number of trades you can expect to perform each day, your chosen broker’s stock trading fee will be much more frequently incurred than it would be for a long-term investor who buys assets a few times a year.

So, you need to make sure that you are comfortable with the fee structure of your chosen platform. Some of the brokers in the table above offer commission-free trading, meaning that if you fulfil certain requirements, you won’t have to cover a trading fee out of your profits.

Should I use leverage?

Leverage is very popular for day traders. It is the process of borrowing money or assets from a broker to maximise the size of your investment. So, if you invest £10, a broker may offer 5X leverage, allowing you to boost the size of that investment to £50.

However, things are not that simple. Using leverage usually incurs fees, and while it increases your exposure to positive price movements, it also makes you equally vulnerable to negative price movements. As a result, you should definitely steer clear of leverage unless you are a highly experienced trader.

Why should I day trade?

Because it is the trading strategy that allows you to pursue returns the most aggressively, and it can be a route to financial independence if you dedicate yourself to mastering the craft.

While these credentials do come at a cost – namely their elevated time-intensity – for those of you willing to do some extra groundwork and constantly check the latest price movements and market activity, day trading is a way to ensure your capital is constantly working for you.

Still undecided?

If you aren’t yet convinced that day trading is a strategy that suits your financial needs and investment goals, check out our breakdown of the pros and cons of day trading below.

Pros

The potential to accelerate your returns – some trades take just a matter of minutes
You could become your own boss if you are successful enough
No long-term exposure to risk since positions are opened and closed quickly
No overnight risk since all positions are closed by the end of the day
Your capital is constantly being put to work

Cons

Day trading is research intensive and requires a lot of time and effort
More unpredictability than long-term fundamental investing
Split-second timing is required to maximise profitability
Day trading is a strategy that can often trigger rash, emotional decisions

Start day trading now

More investing & trading guides

Best investment platforms 2024

Best micro investing apps 2024

Best portfolio trackers in 2024

Best robo advisors 2024

Best trading signals 2024

Sources & references

Our editors fact-check all content to ensure compliance with our strict editorial policy. The information in this article is supported by the following reliable sources.

https://www.tradingview.com/education/daytrading/

Risk disclaimer

Prash Raval

Financial Writer

Prash is a financial writer for Invezz covering FX, the stock market and investing. For over a decade he has traded spot FX full time while... read more.