But what exactly is needed to start day trading professionally and how does an average day look for a day trader?
In the following post, we’ll try to answer that and much more.
Definition of a Day Trader
As defined by the professional day traders over at FincanceRaters.com, a day trader is a person that traders daily, often opening and closing several positions during a day, rarely keeping a single position open for more than a few hours at the time.
Naturally, to be considered a professional day trader, you will have to become efficient enough to make daily returns on your trades.
Now, there are several different ways one can work as a day trader and it’s all based around the instruments or assets that you choose to trade. The two most popular day trading options are to trade either stocks or forex (currency exchange). However, you can also trade commodities, cryptocurrencies, options, bonds, and much more.
With that said, many opt to trade several different assets and can, for example, combine forex trading with cryptocurrencies or stocks with commodities. This is best done using speculative derivatives such as Contract for Differences (CFDs) instead of trading the actual securities of the exchanges.
Required Skills and Tools
To become a professional day trader, one has to master a large set of different skills. Maybe it goes without saying, but the most important skill is learning how to analyze assets in search of value on a said market. Although, that is only one part of the equation.
Skills:
- Analytics – As mentioned, learning how to analyze financial markets is the key to becoming successful as a day trader.
- Determination – You need to be determined that you will succeed. Learning how to trade is not easy and it will require a lot of dedication, often for many years on end.
- Global Awareness – Without understanding what, how, and why certain things happen in the world, you won’t be able to analyze markets correctly. Having a good global awareness is therefore important.
- Patience – Some days there might not be so many profitable opportunities and at times you’ll be losing more money than you make. The trick is to never give up and to continue grinding.
- Research Skills – As soon as you start trading, you’ll realize that it requires a lot of research. Not only do you have to research markets and assets but also the tools you use, the strategies that you can apply, etc.
- Mathematics – Day trading is a mathematical game and if you don’t have a good sense of numbers of calculations, you won’t make it very far.
- Money Management – Perhaps the most important skill to master quickly is money management. You need a stable strategy for how much you’re going to spend and on what as well as knowledge about how to avoid or limit certain risks.
Tools:
- Trading Station – Professional day traders rely on a great trading station to aid them in their work. A good computer and at least two screens where you can show multiple graphs at once is the minimum. Many traders also use mobile trading platforms to further optimize their ability.
- Trading Platform – The above-mentioned trading station will not be of any use unless you also have a trading platform where you make all your trades. These platforms are, generally speaking, provided by brokers.
- Analytic Tools – In addition to analytic tools provided by a trading platform, most day traders rely on a plethora of other analytic tools that helped them better analyze markets to find potential trades.
Working Hours
As a day trader, you will mainly be working on your own and most often, day trader work from home. Therefore, you will have the ability to control your own working hours after your own needs.
The only thing that you have to adjust to are trading hours. You see, every market and exchange are only open during certain hours. For example, if you want to trade American stocks, you will be working during American business hours, and if you prefer training Asian commodities, you will have to adjust to Asian working hours.
Potential Income
The best part about being a professional day trader is that there is no cap on the potential income. Many day traders make several million dollars a month and on a lucky day, you might even make that in just one day.
The more realistic goal, however, is to start making enough that you can live on the income. From there, you can streamline your skills and strategies to improve your returns.
How to Get Started
How you’re going to learn how to trade depends on the skills you already have and how fast of a learner you are. As a complete beginner, we would suggest that you start studying simple strategies and a few different markets. You can even open a demo account with an online broker to start trading using virtual money.
Just keep in mind that there will always be new skills to master, new strategies to try out, and new markets to work with. In fact, you’re learning curve will never be completed. Even the most experienced traders are continuously working on improving their skills.