Let’s talk about day trading for dummies!
First off, you’re not a dummy as you’ve managed to find this webpage, but you may have searched for that word so we’ll stick with it.
Day trading, much like Forex trading, are some of the first things you hear and read about when you develop an interest in trading. I will often receive emails with bold statements like, “I want to be a Forex day trader!”
Sounds exciting, doesn’t it?
Yes, is it, but let’s slow down a little and talk a but more about what it is to be a day trader.
Day trading is essentially opening and closing trades within the same day. For example, if you trade the FTSE 100 then you’d open and close a trade between 08:00 and 16:30 when the market is open. Some times day trades are referred to as ‘intraday’ trades.
So what does a day trade look like in reality and in the? Well if we’re going look at day trading for dummies, let’s start out by having a look one.
Here is what a day trade looks like using our breakout strategy.
Day trading can be fantastic. Both as something fun and highly interesting to do, but more importantly, they can be highly profitable. The trade above made over £1200 in under one hour and 30 minutes. Some of the scalping trading we teach are even quicker. Once you have a larger trading account you can make hundreds in minutes.
Another added benefit is if you close all your positions during the same day, you do not need to worry about what may happen overnight or when you are asleep. This also applies to holding over the weekend which carries even more risk. This is because there is a longer period of market closure along with a lot of political / economic news is often being released at the weekend.
Having said that, there are day trading strategies that can evolve in to swing trades (which typically last days / weeks). The techniques we use do negate some of the overnight risks, but more of that a little later.
Sadly, it’s not all upside when it comes to day trading or trading in general. There are quite a few risks associated with it. A lot of these risks apply to trading in general, but some are heightened with day trading.
Over-leveraging. It’s easy to use too much leverage and get on the wrong side of a big move. Any hesitation can lead to big losses or even the blowing-up of a trading account (or several). Lots of people have done this, lots of people will continue to do this in the future – we don’t want you to be one of them. The restrictions on spread betting have made this a little harder to do, but it’s still a significant risk for those who don’t know what they are doing.
There are fine margins of error and it requires a lot of focus. There can be no hesitation with decisions when they need to be made.
It isn’t like longer-term trading where you can have a bit more time to make essential decisions. If you hesitate when needing to take a loss, or scale-out to take some profit, then you’ll go off course from your trading plan very quickly and this is where things become expensive.
Over-trading is also a big risk and constant temptation. I’ve worked with traders who were taking 30-50 traders per day! Madness. You can call yourself a day trader / scalper / intraday trader but that doesn’t give you the excuse to over-trade and get carried away. We’re not going to talk about recording trades or analytics in this article, but what chance do you think you have to gather and analyse any trades if you’re trading that much? You aren’t going to want to complete a trade log if you have to put 10s of entries in it per day. You simply won’t do it.
Day-trading can be great but don’t under-estimate the challenges it poses and the work you will need to do to succeed and remain consistent.
Day trading is often sold by educators as being ‘quick and easy’. Now it can be quick, but it isn’t easy. If it were wouldn’t every trader be doing it and making lots of money from it? If you think day trading is all about ‘the lifestyle’ where you’re going to wake up, trade for 30 minutes on a laptop on a beach somewhere (you know the images) and be done for the day, then you’re very much mistaken.
This isn’t something that can be done on a mobile phone whilst working a 9-5 job. There are opportunities in the evening, but this limits the amount of potential opportunities to trade.
Professionals who day trade will have a home / office setup with multiple monitors (two minimum if you only trade few markets). They’ll have a consistent routine. They wont be grabbing 30 minutes here or there between other commitments to trade.
Sorry if that shatters and illusion for you. I’m here to tell the truth, not package trading up as something it is not.
Let’s have a look at how you can get started with day trading in a risk-free way.
If you’re just starting out trading or are new to day trading then the best way to get started is to open a demo account with a broker. You can’t trade without a broker. This has other names like a ‘sim account’ or ‘paper trading’. Whatever you call it, you’re trading with pretend money and are not risking anything. There are downsides to using a demo account. The primary one being it’s a lot easier because the psychological challenges with trading are absent.
Quick tip – when you trade on demo make a note of how care free you are. Contrast that to how you trade with real money.
Lots of people find it easy to make money on a demo account, so naturally they think it’s the same on a live account. Of course it isn’t, so don’t fall in to the trap of think trading is easy of you end up making a lot of profit on a demo account. You won’t behave in the same way.
The purpose for using a demo account here is to get familiar with the mechanics of trading. If you’re a total beginner then just get stuck into taking lots and lots of trades. Place stop losses, limits, open and close trades, see how leverage and contract sizes work. Go nuts with it. It doesn’t matter what happens as it’s pretend. At this stage it’s about getting comfortable with the fundamentals.
We trade using MT4 and it’s a great platform to get familiar with and you can find a list of brokers we recommend on this page (scroll down just a little bit) who you can open a demo account with. There’s also a comprehensive guide as to how to use MT4 on that page, too. You can’t accuse me of not providing you with plenty to read.
One of the things professional traders do is record things. Ok, we’re not talking about comprehensive trades logs and journals at this stage (that should come later), but recording data, feelings, thoughts etc is very powerful stuff when it comes to trading success.
For the purposes of getting started day trading you don’t need to record that much. You want to record things you like and things you don’t like. Which markets are taking your fancy? Which way of trading do you like? How quick are your day trades? Minutes or hours? How many trades do you feel like taking? How does your trading behaviour change depending on whether your previous trade/s was a loser / winner?
These things will likely change as you develop and grow as a trader. That’s fine but you need more than just your memory as to record things your growth. You’ll have a much more objective basis to judge your progress.
This is an important part of day trading for dummies. The next part that’s rather important are…
Finally, an exciting part!
Let’s talk about some trading strategies and then give you some to go away and work with once you’ve finished the article.
Scalping is very short-term trading. From a few seconds to a few minutes. With Spreadbets and CFDs (the way nearly everyone reading this will be trading) are more suited towards minutes rather than seconds as being the appropriate minimum times for a scalp.
There are different strategies for scalping, but all are looking to take advantage of small, quick moves in the markets.
We base ours off support and resistance and they are focused around index trading i.e. the FTSE, DAX and DJIA.
Now this is where we blur the lines a little. Swing trades can start off as a day trade and then evolve into longer-term trades through both their positioning and profit-taking approach (scaling-out and leaving a part of the position on).
Swing trades are trading from one zone to another. This can be either through breaking out (as above) or in sideways markets that look like this:
Some of our biggest trades have come from this technique. Earlier I spoke of reducing the risks that holding overnight and over the weekends that comes with trading. This is because of the scaling-out element. It reduces the risk of the trade because the size of the trade is reduced. Our stop loss management also helps reduce risk.
Momentum trading is looking to take advantage of trends in the market. Momentum strategies often consist of moving average analysis such as waiting for the market to ‘pull-back’ to one of them to enter the market, but there are other methods for entering the trade.
Reversal trading is trading against the trend or in range-bound markets. This can be highly profitable and our scalping strategies in the video below are primarily based on reversal trading. But reversal day trading can last a long longer than scalps. Basic double tops and double bottoms can occur on a day trading.
Whilst markets do trend they also stay in ranges.
Here are three strategy videos for you to watch once you’ve completed this article. The scalping one is only for day trading, whilst the others cover day-trading and longer-term trading scenarios.
The scalping on is an hour long so make sure you have time to watch it all as it’ll provide you with a complete guide to scalping the markets.
These aren’t videos designed to ‘tease’ or lure you in. These are the actual strategies and techniques that I use on a daily basis. Why do I provide these? Well, because I am nice. More importantly, there’s no reinventing the wheel in trading so there’s no need to keep anything secret or pretend there are any secrets. Just because you have a profitable strategy doesn’t mean you’re going to execute it correctly.
Day trading for dummies tip – don’t get too worried about naming strategy types. These are quite broad categories. All that matters is whether they make profit or not.
Day trading for dummies – signals, right?
“I know, I’ll just copy what a successful trader does and it’ll all be fine”
This is a pretty logical position to take. Find someone who knows how to trade and copy them and make money. Unfortunately, there are a few issues we need to discuss and make you aware of.
Every trade educator / signal provider is a multi-millionaire who has a 100% win rate. Cars, watches, ‘the lifestyle’ and lots of other garbage that has no relevance to helping you trade is used to sell to you and lure you in.
Any serious signal provider won’t pretend they have some insane, unrealistic performance level from their trading. Anyone serious won’t try and sell to you on the back of trading bling and ‘the lifestyle’.
Remember, if it sounds too good to be true, it usually is. This is a golden rule with trading and a question you always need to ask yourself when reviewing something related to trading.
Far too many people out there are searching for the quick and easy fix to trading and it doesn’t exist. It’s not easy, or everyone would be making a fortune!
This is a common tactic from the signal provider. This ‘strategy’ involves adding to losing positions and scaling-in. This allows the signal provider to avoid taking losses for a period of time. Sometimes it works and they get away with it. That’s until it blows the entire trading account and they can start again.
A signal provider can feel under pressure to send signals so they end up compromising on the quality of them. The most important thing is the long-term performance. It may satisfy the desire for the signal copiers to have lots of trades, but it doesn’t help them in the long-term.
A common trick from signal providers is to send out ambiguous signals. “We’ll look at going long here at this level” . This allows the result to be manipulated. If the move goes on to work then the signal provider can proclaim it worked. If it doesn’t then they can forget about it.
Signals needs to be clear. Here is how we send ours out.
Clear entries and exits both visually with a traffic light system and the actual figures for the market written down so it’s clear and accountable.
One of the biggest reasons why signals themselves, regardless of quality, won’t work for you is because you need to understand the strategies that are triggering the signals.
Any strategy or system will have drawdown. Drawdown is where there are periods of losses. What tends to happen is that during these draw down periods people who follow the signals ‘abandon the ship’ and either give up trading or look for another signal provider.
We provide day trading signals, but crucially we provide the trading courses and live trade room to explain the strategies behind the signals and also trade the signals live in our live trade room.
In order to trade any signals you need to understand the strategies to have confidence in them.
Here is how we present our signals and updates in Telegram, which is available on both mobile and desktop.
A clear chart with a traffic light system of orange, red and green for the entry, stop and profit target/s as well as a blue information box with the strategy and a Telegram summary.
No ambiguity, no opportunity for any ‘hindsight’ changes or claims. Being accountable is key when providing signals.
So, day trading for dummies. My aim here was to give you a reality check surrounding what day trading is, what the relevant profitable strategies look like and what you should be aware of when considering trading signals. Get stuck in to the linked articles and strategy videos. It’s all designed to help make you the trader you want to become.
Do you have any questions? If so contact us on WhatsApp or Telegram below and we’ll do our best to help you meet your trading goals.
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