Intro: Day trading basics
Day trading is all the talk of the town nowadays, but what exactly is day trading, what strategies do you use in day trading, and how do you pick a stock to day trade? These are all essential questions for anyone looking to get into trading. We will look at these questions and help you find your niche and better understand the day trading concept. Knowing where or how to start is a beginner trader’s biggest obstacle. Understanding these core concepts will help accelerate your learning curve and get you closer to being in the game or further ahead if you have already begun your trading journey.
What is day trading in stocks?
First, we need to identify what exactly day trading is, how you do it, and what it means to be a day trader. By definition, a day trader is someone who primarily opens and closes their trades in the same session. There are many different ways to participate in day trade. Many strategies can be executed to achieve a day trade. Some popular methods include scalping naked options, credit spreads, and debit spreads using SPX. Day trading does come with pros and cons, as does any system. Some of the most appealing aspects of day trading come from quick gains, no overnight risk, and flexibility in your trading style and schedule.
Best stocks to buy for day trading
The best stocks to buy for a day trader can be broken down into a few different categories; account size, risk tolerance, experience, and overall options strategy. Another key to developing a successful day trading strategy is to master a particular set of names in the stock market. Big tech companies have become a staple in day trading as the volume and liquidity in the options chain facilitate entries and exits. Tech giants such as Apple (AAPL), Amazon (AMZN), Google (GOOGL), and Nvidia (NVDA) are prevalent technology names for a day trader’s watchlist. Another list of names that day traders often utilize is the indexes themselves. Using the S&P 500 index (SPX), SPDR S&P 500 ETF Trust (SPY), and Invesco QQQ Trust ETF (QQQ) are the three primary vehicles to trade the market.
Day trading how to find stocks
There are many different ways to find a stock to day trade. One common practice is to find a select number of stocks that you like to trade and focus solely on that list to become more and more familiar with the names as your trading career progresses. If you still need to get a set list, using a scanner is another way people find stocks to trade for any given day. Common things to look for in a scanner are volume, momentum, and the squeeze.
Best cheap day trading stock
Cheap will always be relative to account size, but generally speaking, an options contract less than $3.00 can be considered cheap. It is also essential to understand that there are different price points for each name in the market depending on how far away from the option expiration is and the distance from the money.
How to make $50 a day trading stocks
If you have a goal of $50, or any dollar amount for that matter, you need to look at how much money you are willing to risk. The reward will always come second in any day trade that you take. For example, if you are ready to risk $100, you would be looking to achieve a 50% return to achieve your goal. If you are willing to risk $500, you will only need a 10% return in that same trade. So achieving $50 as a profit goal is very achievable if you can risk what it will take to get there correctly. Any goal should be predicated on your account size, risk tolerance, and aggressiveness. Aggressiveness should come with experience rather than the desire to make money. An experienced trader knows how and when to be aggressive and when to take the foot off the gas pedal.
Fast-moving stocks for day trading
For traders that like higher risk names due to the speed of which the premium moves, Tesla (TSLA), S&P 500 index (SPX), SPDR S&P 500 ETF Trust (SPY), and Invesco QQQ Trust ETF (QQQ) come to the top of mind. These tickers move faster than others because they have many shorter-dated expiration contracts to trade. Tesla does not offer a contract that expires daily like the rest, but the stock volatility causes the premium to move at an accelerated rate.
How do you day trade
You successfully day trade by treating it as a business. Day trading can be a higher risk than other trading groups, but if you learn the game, you can still have an edge in your trading. Many strategies can be deployed in a day trade; we recommend you find what fits your personality as a trader the best. As a day trader, you will rely on technical analysis to achieve gains from short-term market price swings. When taking a trade, you will enter and exit the position within the same business day.
Day trading Strategies
Some of the top day trading strategies include Scalping, Credit Spreads, and Iron Condors. Scalping is when you enter and exit a trade within minutes. This strategy is one of the quickest and riskiest if you do not follow your trading plan. Scalping can be very efficient if you obey your game plan and are willing to cut without regard to emotions. Credit spreads are an options strategy that benefits from theta decay. In lamest terms, as time goes on, the trade becomes more profitable… as long as it does not go dramatically against you.
This strategy can also be used on a longer time frame to capture more premium on more significant picture moves, but in a day trade, using a zero-day expiration option can allow you to benefit from the theta decay in a single trading session. The following strategy that has gained popularity is an iron condor. An iron condor is similar to a credit spread, but multiple legs create a zone where the price must remain by the time the option expires. An iron condor is another strategy you may use on a larger time frame as well, but in a day trading, pulling it down to a short-dated expiration contract will allow you to profit through a day trade using this strategy.
Conclusion
Day trading is a skill that takes time to develop, just like any other strategy in the markets. Finding your risk tolerance and trading strategy are reasonable first steps along the day trading journey. Setting realistic expectations for account growth and gain is paramount, as having unrealistic expectations can lead to greed and bad trading decisions. Lastly, understanding a particular bucket of stocks and how they move on a day-to-day basis can be a very beneficial way to know what to trade on any given day if you are not using a scanner.
FAQ’s
Day trading is any trade with the entry and exit of a position executed during the same day. There are many strategies to successfully day trade, but each goal is the same. The purpose of any day trading strategy is to benefit from short-term price movements within a day. The time frame for a day trade can span from minutes to hours.
This is a common misconception when it comes to day trading. You do not need $25,000 in an account to day trade. The misunderstanding stems from the pattern day trade (PDT) rule, which states that you can not execute four or more transactions in five days. This is true, but on a margin account. The way around the PDT is to have a cash account. The only downside to a cash account is that once your buy power is used, it will no longer be able to be used until the next day when it settles.
Day trading does fall under the short-term capital gains category when tax time comes around. This means the rate you will get taxed is higher than those long-term capital gains. In comparison to long-term investors, yes, there is a higher tax on capital gains when it comes to day trading. A short-term gain is on any asset that is owned for less than a year, and a long-term gain is anything held beyond that point.
