The stock market is a huge topic right now. Everyone wants to get their cut, quit their day job, and start day trading. Social media only adds to the hype. The idea of making thousands of dollars in a day seems like a daydream. Is it a daydream? For most people, yes. But still, a small percentage of people make big money day trading stocks. With so much about day trading on the news on social media, a lot of people have questions. Hopefully, we can answer some of your burning questions like: What is day trading? Can you quit your job and make money trading? And how do you get started day trading?
What is Day Trading?
Day trading refers to the process of buying and selling stocks within a single business day. Sometimes that includes buying stocks and holding onto them overnight and then selling them. Day traders focus on technical charts and trends. They don’t care about a companies stock history. They’re more concerned about what a certain stock will do within the next few hours. There is a need for technical analysis in day trading.. not just going on whims. For example, a day trader may buy stock from a bankrupt company when stock is cheap because they expect the stock to have an uptick that day. It doesn’t matter that the company is bankrupt because before the day is out they no longer hold stock in that company.
Day Trading vs. Investing
Investing is a broad term, but for investing, we mean long-term stockholders. Long-term investors buy stock in companies that they believe will increase in value over time.While day-trading is very technical and sometimes emotional. Investors usually don’t get emotional about the rise and fall of their stocks, because they plan to hold them for days, weeks, or sometimes even years. Anyone who trades on the stock market has to pay taxes on their earnings. Day traders ideally make earnings every day. So they have to calculate their earnings into their taxes every year. Long-term investors pay fewer taxes overall on their earnings. If you hold a stock for less than one year, then expect to pay your regular income tax on your earnings.On the other hand, investors who hold their stock for one year or longer pay less in taxes.
Can You Make a Living Off Day Trading?
Can a gambler make a living off their earnings? Most of the time, no. But, there is always the occasional lucky winner. The same goes for day trading. It’s rare for someone to make a living off their earnings, but it does happen. The key to being a successful day trader is timing the market and predicting trends. You have to get good at knowing what to risk, when to risk it, and when to sell. It takes a lot of research and determination to do.Even when you do all the research and believe you’re making a good trade, sometimes you end up losing. But when you do win, you have the possibility of winning big. We’re talking 5-6 figures big. So, don’t quit your day job. But if you continue practicing tracking market trends, then you could eventually get to a point with regular income from day trading.
How Much Money Do You Need to Start?
You don’t need to invest large amounts of money to get started day trading. Many day traders work with penny stocks (stocks that cost under $5). Having a certain amount of capital (or not) can be a reason to start day trading. As a general rule, it’s a good idea to not invest more than 10% of your portfolio at a time. With a small amount of money, you likely won’t earn a lot. The more you invest, the more you risk and the more you stand to gain. It’s a slippery slope.Before risking big amounts, it's a good idea to start small and get your technique down first.
Tips for Getting Started Day Trading
If you think you have what it takes to start day trading, then do it! Day traders are technical thinkers who can separate themselves emotionally from the situation. Here are some tips for being a successful day trader.
Before investing in any stocks, you’ve got to do your research and identify trends. That includes watching the news and predicting how it affects people’s stock-buying. Twitter and Reddit have become huge sources for identifying trends. In recent months, social media has played a huge role in stock trends. We all remember how Reddit’s r/wallstreetbets affected GME stocks. Imagine if you’d been a day-trader who predicted that trend.
Set Rules for Yourself
Once you’ve bought a stock, you need to have a set stopping point for when you’ll sell. It’s easy to get greedy and hold on when you shouldn’t. That’s why you need rules. Once you’ve reached the desired profit (or lost too much to justify), sell that stock.Instincts may play a small role in day trading. But overall, if you make a plan, set rules, and stick to them, then you’re more likely to be successful.
Contrary to what movies and television lead you to believe, no one gets good at day trading overnight. It’s a long process with a lot of trial and error. You’re going to lose money, and you’re going to hate it sometimes. But that’s why most people don’t stick it out and don’t see the major wins. If you’re patient and you keep adjusting your method, then you’ll eventually see success.Even once you have a full successful week, you may see a negative week right after. Be patient through the bad days, and remember there’s always another good day.
Reach Your Goals Faster
Hopefully, this article helped you learn what is day trading and get excited about the prospect of becoming a trader yourself.Premier Trader is a cloud-based trading platform for traders to learn from each other and even get funded. We can help you form strategies and create your trading style. Apply today to join our trader firm.