Day Trading Online

Day Trading For Beginners

You've heard people talking about Day Trading Online at parties, at work or on TV, and heard that it can be done right from the comfort of your own home office....but don't really know what it's all about.

You've landed on the right page. This page is all about day trading online for beginners. I'll do my best to explain what online intraday trading is all about, and answer most beginner type questions on this page or with links to some of my other pages.

If you're already past the beginner stage and have a feel for what day traders do, and want to move on to the next step; a good place to start is with my first day trading tutorial on basic technical analysis.

Or, if you're already familiar with TA and price indicators, maybe you'd like to learn about price action trading or the basic components of day trading systems.

I've structured this website so that the material and topics are listed in a hopefully logical manner on the left-side navigation bar.

So that as you move along on your trading journey you'll come to more involved material.



Lets get some common questions about day trading online answered:

  • What is day trading?
  • How does day trading work?
  • Is day trading a business?

  • What's an average day trader salary?

  • What are the different types of trading?

  • Is online day trading gambling?
  • No, absolutely not. With gambling, the house and their games always have the edge. Some say around a 5% edge. When you walk into a casino, you are playing games like roulette and slot machines, that over the long term (many plays) will pass money from your hands into casino accounts. Why is this? Because, they have the edge and you don't. Sure, you will have a winning streak every now and then, just like a flipped coin will come up heads several times in a row, but statistically speaking, if you play long enough, you will lose your money eventually. Day trading online, if done properly, and with systems that provide positive expectancy (you'll come to that part later) can be similar to being the casino. In other words, if you are trading systems that over many trades, provides positive expectancy, you will go through drawdowns and losing streaks just like a casino does, but after many trades you will come out ahead. This is assuming of course that proper position sizing has been applied to all trades, that the original edge and probabilities of systems remain in place, and you can make it through the psychological turmoil of the drawdowns. Unfortunately, whether or not trading systems retain positive expectancy can always be suspect, unlike the casino games, that have probability on their side 100% of the time

  • Is day trading online risky?
  • Just like starting any new business, it largely depends on how you go about it. If you're starting a new business and you do your homework....planning and research, and you are properly capitalized, you'll have a far better chance of making it. The same goes for online day trading. As with any traditional business venture, if you're not properly prepared and committed, you will almost certainly lose money. That's common sense and we all know that. Take for instance a newbie mistake that so many new traders make that would never be made in the first place, had they educated themselves with some simple trading basics: Trading their entire account plus margin on one single trade. This is extremely risky whether you're day trading or buy and hold investing! And, let's compare for a moment, day trading online to buy and hold investing. What does the typical buy and hold investor do 99.9% of the time that a well prepared and educated day trader would never do. They buy individual stocks without a stop loss. They have absolutely no plan accept for hope -- hope for the future of that stock's price. Talk about risk! How many times have you heard about somebody investing in some new stock, only to hear a year or two later that they lost almost all their money. Some even buy more shares as the stock is going down, because they think they're buying it cheap! Next thing they know, they own a penny stock, because they never considered the risk. A properly executed day trade always has a stop order in place, which if hit, should risk no more than, and usually less than 1% or 2% of a trading account. Much of the risk of day trading online come from a trader being unprepared for the markets as well as not utilizing a trading simulator first to prove that his methods work. On top of that many are trading too frequently, making it harder to overcome the cost of commissions.

WHAT'S THE DIFFERENCE BETWEEN DAY TRADING, SWING TRADING AND POSITION TRADING?

The difference is mostly about time, risk and potential reward. First, lets go over how each type of trading relates to time.

The duration of time that the trader is in a trade determines, generally speaking, what kind of trade it is. Lets go over three different examples of trades, all on the same stock, that will illustrate the difference between day trading, swing trading and position trading.

I'll use Exxon Mobile (XOM) to demonstrate all three types of trades. First, is an example of a position trade on a daily chart.

I define a position trade -- and this is somewhat subjective -- to be a trade that lasts over a week to possibly months. Position Traders generally make far less trades than both swing and day traders. But, their trades last much longer, giving each trade the potential for much larger percentage gains.

Let's say a trader decided to go long (buy) XOM as it broke above this small base near the end of January. With his method of trading, he sees no reason to exit the trade yet and is still in the trade almost a month later.

He will exit the trade, if the price closes below the blue trendline or meets his price target, whichever come first. This could be the next day or it could be weeks or months. But he's not a buy and hold investor, so he will take a profit eventually.

Position trade example using Exxon Mobile

OK, now let use the same chart of XOM to look at an example of a swing trade. Swing traders typically hold a trade for a period of days to a week.

This fictitious trader has a method of buying up-trending stocks when they pullback to his moving average. His trade quickly moves in the desired direction without being stopped out. But, after less than four full days in the trade, he gets a bit worried by the small red candle which might be indicating a loss of momentum in XOM and decides to exit that day near the close of the session. He caught a nice profit from that swing, but by comparison, the position trader is still in his trade and sitting on a bigger price gain with possibly more to go.

Swing Trade Example using Stock Chart of Exxon Mobil

So how does day trading online come into the picture? Lets use Exxon Mobile one more time to illustrate a single day trade.

Our last case is a day trader. He has no absolutely no desire to hold trades after the close of the session and over night. He does not want the risk that is required to be a swing or position trader. His goal is to make a trade....either long or short and profit from it within minutes to hours.

He might make a dozen trades with only one favorite stock. He might make only one trade that day from a list of hundreds of stocks or he might have many trades going on all at the same time using several different strategies.

No matter what intraday strategy is used, all trades are closed or exited by the end of the day.

In the 10 minute chart below, our day trader gets long on a break of XOM's 30 minute range arounf 10:30am. He uses a moving average to determine his exit from the trade which comes approximately three hours after his entry. If by some chance the stock kept going up until the end of the day (4:00 pm ET), without hitting either a stop or a profit target, he would've manually or automatically exited the trade prior to the close. All other trades would be closed by the end of day as well, resulting in a 100% cash position.

Take a look at the chart below.

day trade example using chart of XOM



WHAT ARE SOME ADVANTAGES & DISADVANTAGES OF DAY TRADING ONLINE VERSUS SWING OR POSITION TRADING?

I mentioned that the difference between day trading, swing trading and position trading is not only about time, but also about potential risk and reward. There are some major disadvantages and advantages that day trading online has versus the other two types of trading.

One of the disadvantages of day trading online is that a stock's price is confined to the limits of one trading session. So, the potential for price to move a large multiple of your initial stop is severely limited (this concept is covered in later pages). Sure, there will be days when you can catch really nice multiples, but in comparison to a position trade's potential multiple, it's very small.

day trading ebook cover

Also, there are far more trades generating lots of commissions for the brokerage firm compared to swing or position trading. Also, day trading online requires you to be at your desk and in front of your monitors far more often than either swing or position trading, which can be done while working a full time day job.

However, there's some big advantages that day traders have over swing and position traders. There is no charge for margin used during the day as long as trades are closed by the end of the session. Swing and position traders don't have this benefit and must pay margin fees if they're using it.

Day traders have the ability to trade more frequently, enabling accounts to compound more rapidly. Of course, this can have the opposite effect as well, if someone is trading negative expectancy systems.

One of the aspects of intraday trading that greatly reduces risk is no overnight trades. After the close and before the open is when most news comes out that can greatly effect the price of a stock.

A stop does not always protect you from overnight gaps. You might be making a swing trade with every intention of not risking more than 2% of your account on any particular trade, but sometimes stuff happens. In the case of Hewlett-Packard (HPQ) below....it wasn't good stuff!

This is the risk you must take when trading for the bigger moves.

stock chart of HPQ


HOW MUCH CAN YOU MAKE DAY TRADING ONLINE?

The hard truth is most people don't make money in this business, most people end walking away with a smaller account than when they started. Some numbers that are thrown around are 80% to 95% lose money.

That's about the same as the failure rate of new businesses in various industries after a year or two.

But if you can stick around, hold on to your account, and learn the ropes, the money that a person can make day trading online can be quite substantial. New traders can make in the hundreds per day. Intermediate traders can makes in the thousands per day and the best can make 5 figures per day on average.

Of course, losses can match those numbers as well.

The earnings potential of day trading online also has to do with leverage. The leverage of certain trading instrument like futures and forex is much higher than stocks allowing traders to multiply their gains. But, leverage has most likely been one of the main contributing factors of the downfall of many aspiring traders.