How Does Day Trading Work?

How does day trading work? Here's a real quick overview.

First, you set up a stock trading account with a day trading brokerage, such as Interactive Brokers (IB), TradeStation, or MB Trading. There are certainly other brokers, but any of these three will get the job done and they're all well known and been around awhile.

Second, you'll have to decide whether or not the broker's charting software, trade entry and trade management screens as well as real time data are sufficient for your use. If not, then you'll have to go to outside software sources such as NinjaTrader, QuoteTracker, Ensign, etc., to find a day trading platform or charting package.

Third, if you think you'd like to get into or learn about mechanical trading systems, you'll need to take a look at backtesting and/or automated trading software. I don't suggest getting involved in automated trading until you're much further on the learning curve, then you're going to have to consider purchasing or leasing software from day trading software firms such as, Amibroker, NinjaTrader, Multicharts, etc.

After setting up the above and setting up your trading computer and accessories, you're ready to go. Well not really...... the smartest thing you could do, even if you're convinced that it's time for you to take your rightful place in trading history and make zillions of dollars is to learn the trading software inside and out.

And I do mean inside and out. If the trading platform you're looking at has a trading simulator, by all means use it until you know it like the back of your hand. You don't want to be in the middle of a stressful trade when something odd happens, like fat fingering some button.

Believe me, been there, done it. Learn the trading platform well. It's time well spent.

Now, I'm not suggesting here that you just jump into day trading simply because it so easy to get started. That's what gets a lot of folks in trouble.

I do think it a good idea to use as much free trading software or inexpensive day trading tools as possible while you're learning. I wish the trading industry had simulators like NinajTrader back when I was learning. They can really help you learn at a much faster rate.

As I mentioned, a day trade is a trade that is initiated at some time during the main trading session and closed during the same day. Now, there's all kinds of durations for day trades, anywhere from seconds, maybe even less, to hours.

But, for the most part, in this website, I'll be discussing example, hypothetical trades that have a duration of hours and are always closed by the end of the day.

The best way to answer the question on your own, "How does day trading work?" is to get involved by using a trading simulator and learn about the different kinds of orders (market, limit, buy stop, etc.), order and transaction pages, charts, drawing tools, indicators, etc.. It's much easier to learn about it by seeing it all in front of you. Get involved with the proper tools and you will learn at quicker pace.

Place some orders on the simulator, get to know how use stops.....basically just play around with it, and you'll learn faster than just reading a book or web page.