22 Aug How to Get Started with Day Trading

How to Get Started with Day Trading

Day trading can be a brilliant way to make a living. But what’s the best way to get started? Whose courses do you buy? What books should you read? What day trading chat room service should you join?

Here’s what I believe you need to get started:

Learn the Basics

There are plenty of great books out there to learn the basics of day trading and technical analysis. The best books I have read thus far are by:

• Steve Nison
• Harry Boxer
• Al Brooks
• Ann Logue
• Anna Couling
• Brian Anderson
• Jea Yu (note: Jea is a co-founder of this website)

You essentially need to study up on technical analysis in general, candlesticks, price action analysis, volume based analysis, and a basic set of day trading strategies like the opening-range breakout strategy and Jea’s perfect storms. The books will take about a month to digest and might cost around $200 in total to buy, but it’s time and money well spent.

You could also invest in a video course like the one offered by our friends at Alpha 7 (https://alpha7trading.com/). Those types courses can cost anywhere from a few hundred to a few thousand dollars, but have the advantage of giving you a more thorough introduction with real life examples. Also, trading can be easier to learn when you see live charts vs. pictures of charts in books.

Separately, also check-out the hundreds of YouTube videos out there on day trading. The downside of the free stuff out there is that they typically leave out the really good and important stuff for their premium courses. Free stuff will only get you so far, but they can be useful to learn some of the most basic concepts like Stochastics, MACD, etc.

Practice

I recommend trying out trading simulators that allow you to paper trade – trade without real money – and practice various trading systems. Two websites that I like are Think or Swim (http://www.thinkorswim.com) and the Trading Sim (http://www.tradingsim.com). That will allow you to practice day trading whether the market is open or not. A trading simulator is also useful to put new day trading strategies to the test and also to get a feel for different types of stocks. For example, large- and mid-cap stocks have a very different ‘feel’ than small and micro-cap stocks. They can be less or more volatile, have large or small bid/ask spreads, and can be more or less predictable. A trading simulator allows you to play them without risking real money.

Save Up Some Money

You need to meet the $25,000 minimum capital base requirement to qualify for a pattern day trading account with 4:1 leverage (= $100,000). You should ideally have a little bit more, so you have a buffer in case you drop below $25,000 when you lose some money. And you will lose money. Everybody does. It’s part of the journey.

Shadow Trade

The next step in your journey is to sign-up to a day trading chat room that allows you to observe a professional day trader and potentially shadow his trades, i.e. copy his trades. If you find a good day trading chat room, you could learn from that trader and make money while you learn his techniques and experience them in a live market.

Having said that, it can also be quite risky to shadow someone, because you might always be a few cents late on the entry and exit. So it’s important to understand the rationale of the trade and whether or not you are too late to copy the trade. For example, being a few cents late isn’t always a bad thing, if the trade aims to capture a 50 cent or 1 dollar move. However, if it’s a scalp for a quick 10 cents, being 5 cents late on the entry and 5 cents late on the exit could pretty much kill your profits. That’s why it is important to learn the basic day trading strategies first before you decide to shadow someone.

I respect day trading chat rooms that have a free or low-cost trial. If a day trader is good and makes it easy for his members to follow his trades and makes them money consistently, he should have nothing to hide. Stay away from day trading chat rooms that don’t have free trials or even ask for a 3-month commitment up front. More importantly, stay away from day trading rooms that don't track and disclose their performance daily.

Get Coaching

I tried day trading by myself for 6 months and lost plenty of money in the process. I read the books I mentioned above, watched dozens of YouTube video tutorials and shadow traded alongside 12 different services. Yet, I kept losing money while the day traders I followed were making money on the very same trades. Something was missing, but I couldn’t figure out what it was. It was only when the financial loss and pain were too much that I acknowledged that I needed some professional coaching. A good day trading coach can help you get to the next level and eliminate any sticking points that can make the difference between constantly losing and winning. It’s like playing golf. You might be off by just a tiny amount, but that tiny amount can make a huge difference. And sometimes in life, you just need a little bit of coaching to help you get to the next level. Coaching can cost anywhere from $250 an hour to several thousand dollars for several months of coaching sessions. In my case, they were worth the investment.

Pick Your Own Trades

As you gain more confidence, you will want to start picking your own stocks to trade every morning. Though I recommend you stick to more predictable and liquid large cap stocks like AAPL or FB. Pick one or two that you get to know really well, and start adding them to the mix. That will gradually allow you to build-up your confidence and reduce your reliance on chat rooms and other people’s trade suggestions. It’s important that you don’t go overboard and trade too many of your own picks initially until you confirm that your picks work and make you money. Again, the trade simulator might be the best testing ground for your own picks before try them in a live market.

Don't Give Up Too Early

It takes 3 to 9 months to get to a point where you could potentially day trade for a living, making anywhere from $100 to $1,000 on average a day, if you have a $25,000 capital base.