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The Only Day Trading Guide a Beginner Will Ever Need  (The Basics from A to Z)

The Only Day Trading Guide a Beginner Will Ever Need (The Basics from A to Z)

Does anyone really make consistent money day trading? Can YOU make money day trading?

How hard is it?

What does it really take?

And how does it all work in the real-world?

These are the questions most beginners have. And these are the questions that will be answered in this article.

Plus much more.

So if you’ve heard about day trading, but don’t know where to begin… 

Or if you’ve dabbled with day trading, didn’t do as well as you hoped, and just don’t know the right way to give yourself the best chance to make consistent profits…

Or if you’ve lost a lot of money trading on longer time frames, and are curious but skeptical about the world of day trading…

This article was written for you.

I have day traded for over 25 years and have run a proprietary trading firm since 2005- and we do a ton of day trading.  We have built our firm teaching beginners how to day trade, and are proud to have built numerous 7-figure-a-year traders, with the best making 8 figures-a-year. This makes us one of the longest lasting and most successful proprietary trading firms out there. 

SMB Offices, Manhattan, NYC

smb capital trading floor

And in short, Yes! Yes, you can really make consistent money day trading!  

And there are many more benefits to day trading than just the ability to consistently bank profits. 

For those of you who do not know, day trading is a historically profitable trading strategy that today can be deployed by just about anyone.  Advances in technology, namely the internet and online trading platforms, have revolutionized the game of trading so now you can day trade from your home.  

This trading strategy used to be available only to elite trading houses like Goldman Sachs and JPMorgan and large trading institutions with direct access to the exchanges.  And they banked consistent and huge profits every month using this trading strategy that was solely available to them.  But now anyone with an internet connection, lap top, and a trading account can use this time-tested strategy.  Done well it is extremely profitable.    

As the Co-Founder of SMB Capital, a NYC-based proprietary firm that executes day trading techniques, and author of two trading books on this subject (One Good Trade and The PlayBook), I will share the only guide you will ever need on day trading.  With mostly these day trading techniques, we have developed traders who have achieved the ultimate success as a trader and surpassed their wildest financial expectations.  In this article, we will cover:

The Incredible Benefits of Day Trading

You may be wondering: what can day trading offer for me? Great question.  Let me try and help you with this answer, leaning on my experience in this discipline.

From my seat, the top 6 benefits of day trading are: 

1. Day trading offers the potential for quick profits.  

2. Day trading offers the potential for huge profits without requiring substantial capital.

3. Day trading is accessible for many.  The rise of online trading platforms have made it easy for anyone with an internet connection and computer to trade.  You can literally day trade from your home profitably.  

4. Day trading is exciting.  Each day is new, as you are navigating the top news events of the day.

5. Flexibility.  Day trading can be done from anywhere with a computer and an internet connection.  No commute.  No boss. 

6. Self-discovery. You will learn more about yourself day trading for a year than anything else you have ever done. 

The Drawbacks of Day Trading 

So some of you are probably used to seeing videos of lavish trader lifestyles, “trading gurus” trading off of a laptop for an hour a day, heck maybe even 15 minutes a day, and then relaxing on some secluded beach for the rest of the day.  These “trading gurus” sell the models and bottles, stacks of cash, and Lambo dreams lifestyle.  They sell it well.  

Is this the reality of a day trader? 

Well, all I can tell you is that our day traders train like pro athletes.  They live and breathe the markets and are continually working on their trading skills- because at our firm that’s what we’ve found it really takes to make it in this game. 

And day trading does have some other drawbacks as well.  

From my seat, the top 5 drawbacks to day trading are:

1. High risk: Day trading can bring significant losses to those who are not properly trained.

2. Emotional stress: The fast-paced nature of day trading can be emotionally taxing, as traders constantly deal with the pressure of making quick decisions and managing losses.

3. Time commitment: Successful day trading often requires significant time and effort to research, analyze, and execute trades, which can be demanding and time-consuming.

4. Financial costs: Day trading can involve high commission fees, taxes, and other transaction costs that can erode profits, especially for smaller traders.

5. Steep learning curve: Day trading can be difficult to master, requiring a thorough understanding of market analysis, order flow, technical analysis, trading strategies, trading psychology, and risk management.

So given all of these drawbacks is day trading worth it?  

Let’s see on the benefits side we have: no boss, unlimited upside, no commute, excitement, and self-discovery in exchange for some hard work, patience, commitment and discipline.  Don’t you need hard work, patience, commitment, and discipline to be good at anything?  Why would anyone expect day trading to be any different? 

I will let you decide.  

But to me, day trading has been the best job in the world and I am grateful to have found such a rewarding career.  And we have a firm-full of consistently profitable day traders who would say the same.      

What is Day Trading? (For the Complete Beginners)

Okay so what is this whole day trading thing about?  What exactly is day trading?  Let me help you with that.  

Day trading is when someone buys and sells financial instruments, like stocks, within the same day- intraday.  In fact, you might hold a trade for only minutes or hours as a day trader.  The idea here is to make a profit from short-term price fluctuations, and then wrap everything up before the market closes. 

Let me offer an example.

Let’s say you’re a day trader and you’ve been watching a particular tech stock, let’s call it “XYZ.” One morning, you notice that XYZ stock price has dropped rapidly, but you’re confident, for various reasons, it is trading way too low and it’ll bounce back and trade higher during the day. So, you decide to buy 100 shares at $50 each, spending $5,000 in total. Just like you predicted, the stock price climbs up to $52 by the afternoon, and you sell all your shares, making a cool $200 profit (before any fees and taxes, of course).  

That is a simple example of a day trade.  And now you know what a day trade is.  Day trading is just doing more of that, every day, all day while the market is open.     

Okay so now you know what a day trade is but are not sure how to make one and navigate the world of day trading. So let’s get into the first thing you’ll need to know to be able to day trade: how to analyze candlestick price charts.

The Fundamentals of Candlestick Charts

What is a Candlestick Chart?

The Candlestick Chart is a highly visual tool that is part of almost every trader’s arsenal. Simply put, a Candlestick Chart is a type of price chart. It differs from a traditional line chart in that it offers much more information about price movement. Each “candle” represents a specific time interval called the “timeframe”, and illustrates 4 significant price points within its respective timeframe: the open, the high, the low, and the close. 

The Anatomy of a Candlestick Chart

Let’s break down a single candle so that we can learn to interpret price action from a Candlestick Chart. Each candle has two major components: the body and the wick.

Body: The body of a candle is the rectangular section within the candle. It represents price movement between the open and the close of the candle’s time interval. To determine the price direction of the candle we must understand the coloring of the body. Most often, an up candle body will be colored green while a down candle body will be colored red. Occasionally, especially when color is not an option, an up candle body will be hollow while a down candle body will be filled-in. The color designations of the body depend on personal preference, as most charting platforms allow for customization. 

Where is the open and close of a candle?

The open is the price at the beginning of a candle’s time interval and the close is the price at the end of a candle’s time interval. Because the body represents net change from open to close, the open and close will be located at each end of the body. To find the open, pinpoint the bottom of a green body, or the top of a red body. To find the close, pinpoint the top of a green body, or the bottom of a red body.

Wick: The wick of a candle, sometimes referred to as a “shadow”, is the thin line extended from either side of the body. The extremes of each wick represent the price extremes of the candle and contain the high or low of the candle’s range. 

Where is the high and low of a candle?

Naturally, to find the high, we pinpoint the highest price point of the candle, which could be an upper wick, the open, or close. To find the low, we pinpoint the lowest price point of the candle, which could be a lower wick, the open, or close.

Now we can see why they call them “candlestick” charts! When we combine the rectangular body with a thin wick, we get the shape of a candlestick. And by interpreting the structure of the candle, we can easily identify the open, high, low and close of each candle’s time interval. 

A Candlestick Chart is more informative than a line chart, which only illustrates the close of each time interval, and that’s why candlestick charts are more helpful when assessing price action. 

Interpreting Candlestick Charts

Now that we understand how each candle is constructed, let’s bring them to life and examine some of the ways we can use Candlestick Charts to read price action. We will examine the range of the candle along with the length of the body and wicks, and then take a look at what it means to use different timeframes.

Candle Price Action: The range of the candle can tell us something about the volatility of the market. And the length of the body and the wick can tell us even more information about the price action within each candle. 

A candle with a long body signifies a strong directional price move within its time interval. A series of consecutive large directional up or down candles can represent range expansion and a strong trend.

A candle with a narrow range signifies minimal price movement within its time interval. A series of consecutive narrow range candles at similar prices or within the range of the previous candle can represent volatility contraction and price consolidation. 

A candle with long wicks on both ends of a short body signifies large price movement with minimal net change between the open and close. These candles often represent indecision by market participants. 

A very long upper wick and a close near the low of the candle tells us that price attempted to rally and was rejected, all within the time interval of the candle. A series of long upper wicks or one very aggressive upper wick at a key price level can represent rejection at potential resistance.

A very long bottom wick and a close near the high of the candle tells us that price attempted to drop and was bought, all within the interval of the candle. A series of long bottom wicks or one very aggressive bottom wick at a key price level can represent absorption at potential support.

The elements of each candle are building blocks that tell us a story as they print on the chart. The entire story told through the cumulative effect of the candles on a chart is much more important than any one candle in isolation. We can use different timeframes to zoom in and out in order to see the entire picture. 

Timeframe: As you now know, each candle represents a time interval referred to as the “timeframe”. On a 1 minute timeframe, each candle represents one minute of price action. On a 30 minute timeframe, each candle represents thirty minutes of price action. On a daily timeframe, each candle represents one day of price action from the 9:30 am open to the to 4 pm close. And so on. A new candle will start printing for the time interval after the previous candle closes.

1 MIN CHART

30 MIN CHART

DAILY CHART

A “higher timeframe” refers to longer time intervals such as a daily or weekly chart and provides a more zoomed-out perspective. A “lower timeframe” refers to shorter time intervals such as a 5 or 1 minute chart and provides a more zoomed-in perspective.

When you start to use candlestick charts, play around with the timeframes to visualize which timeframe represents your trading style and the way you wish to look at the market. It is a best practice to utilize multiple timeframes to get a multi-dimensional view of the market. 

Now that you understand all the basics of candlesticks and general price action, you’ll be much more equipped to understand the exciting trading strategies we’ll cover later in the article. 

By the way, if you’re really interested in getting into day trading, we’re currently running a free online training where you’ll discover:

  • The simple high probability day trading strategy that we teach all new traders on our desk (this alone could make you a profitable day trader)
  • One of our firm’s most profitable and consistent proprietary trade setups (you won’t see this anywhere else)
  • The unique strategy that turned one of our traders into a 7-figure elite trader (which is surprisingly easy to learn and execute)
  • How to get funded with large risk capital and trade our money with ZERO risk to you (all from your own home)

Reserve your free spot now. (If you’re a complete beginner, make sure to read this article before attending, so you’re completely up to speed and can quickly and efficiently learn the strategies we teach).

Day Trading Basics: Trading can feel like learning a foreign language (help me!)

Perhaps you have started to learn about day trading, but just didn’t understand the terminology.  People were using terms and words and phrases that were like a foreign language to you. 

How can you day trade if you don’t understand what in the world people are talking about?   

Admittedly, day trading has its own language and terminology that can leave some new traders confused and intimated.  It can be frustrating not being able to understand what in the world people are talking about.  

So let’s define some of these terms for you so you can follow the lingo and understand day trading better.  It won’t be hard after learning some key terms. 

In fact, let’s define the top ten most important terms you should know as a day trader.

1. Bid: The bid is an offer to buy a stock at a certain price.  When you place a bid, you’re essentially telling the market that you are willing to pay a certain amount for a particular stock.  

So how does this work in practice? 

Let’s say you’re interested in buying shares of XYZ Company. You might place a bid of $50 per share, indicating that you’re willing to pay up to $50 for each share of the company’s stock. If another trader is looking to sell shares of XYZ Company at that price or lower, your bid will be matched, and the trade will be executed.

2. Ask: At its core, an ask is an offer to sell a security at a certain price. When you place an ask, you’re essentially telling the market that you’re willing to sell a particular stock or other financial instrument for a specific amount of money.

So, how does this work in practice? 

Let’s say you own shares of XYZ Company and you’re looking to sell them. You might place an ask of $55 per share, indicating that you’re willing to sell your shares for up to $55 each. If another trader is looking to buy shares of XYZ Company at that price or higher, your ask will be matched, and the trade will be executed

3. Margin: Margin is the amount of money you need to put up in order to open a position. It’s essentially a loan from your broker that allows you to trade with more money than you actually have in your account. 

4. Spread: The spread is the difference between the highest bid and the lowest ask for a particular security. In other words, it’s the difference between the highest price someone is willing to pay for a stock (the bid) and the lowest price someone is willing to sell it for (the ask).

So, how does this work in practice? 

Let’s say you’re interested in buying shares of XYZ Company. You might see a bid of $50 per share and an ask of $51 per share. The spread in this case is $1 – the difference between the highest bid and the lowest ask. 

5. Stop Loss: A stop loss is an order you can place to automatically sell a security if it drops below a certain price. This risk management technique can help you limit your losses if a trade doesn’t go as planned.

6. Volatility: Volatility refers to the degree of variation of a stock’s price over time. High volatility means that a stock’s price can fluctuate rapidly and dramatically, while low volatility means that it tends to be more stable- it doesn’t move as much.

7. Candlestick Chart: A candlestick chart is a type of chart used to represent the price movements of a security over time. Each candlestick represents a specific period of time (such as a day or an hour), and shows the opening and closing prices as well as the high and low prices during that period.  See the section on candlestick charts in this article to learn more.

8. Technical Analysis: Technical analysis is a method of analyzing financial markets by studying historical price and volume data. Traders use technical analysis to identify patterns and trends that can help them predict future price movements.

9. Fundamental Analysis: Fundamental analysis is a method of analyzing financial markets by examining the underlying economic and financial factors that influence a security’s price. Traders use fundamental analysis to evaluate the financial health of a company and determine whether it’s a good investment.

10. Liquidity: Liquidity refers to the ease with which a security can be bought or sold without significantly affecting its price. Highly liquid securities are easy to buy and sell, while illiquid securities may be harder to trade and can be more volatile.

Well… I hope that helped you. By understanding these key terms, you’ll be better equipped to navigate the world of day trading. 

Keep more of your hard-earned money: Different order types and how to place them

Okay so now you have a better understanding of the key terms used in day trading and can better speak the language. But you still are confused about the different ways you can enter actual orders to buy and sell a stock. And maybe you feel this has cost you real money in the past lacking this knowledge.  

Simply, if you knew how to enter your orders better you could make more money. You could have bought a stock at a better price and sold it at a better price instead of giving this money away to someone else who understands market execution better than you.  

Let’s help you keep more of your money with a quick tutorial.

In this section, we’ll explore the most common order types and how to place them.

1. Market Orders: A market order is an order to buy or sell a security at the current market price. When you place a market order, your broker will execute the trade as quickly as possible at the best available price. Market orders are generally the fastest way to enter or exit a trade.  To place a market order, simply select the security you want to trade, choose the “market order” option, and enter the number of shares you want to buy or sell.

Here’s an example to help you understand how a market order works:

Let’s say you’re interested in buying shares of XYZ stock, which is currently trading at $50 per share. You decide to place a market order to buy 100 shares of XYZ.

You log into your trading platform, select the XYZ stock, and choose the market order option. You enter the quantity as 100 shares and confirm the order.

Once you hit the “Submit” button, your market order is sent to the exchange, and it will be executed as soon as possible at the best available price in the market. In this case, since you placed a market order to buy, you’ll get the shares at the current market price.

It’s important to note that market orders provide a high level of certainty of execution since they prioritize speed over price. However, the actual execution price of a market order may vary slightly due to market fluctuations and liquidity.

Market orders are commonly used when you want to enter or exit a trade quickly and don’t want to wait for a specific price. They can be particularly useful for highly liquid stocks where the bid-ask spread is narrow, meaning the difference between the highest price buyers are willing to pay (bid) and the lowest price sellers are asking (ask) is small.

However, it’s worth mentioning that market orders may carry some risks, especially during periods of high volatility or when trading less liquid securities. In such cases, the actual execution price of a market order can deviate significantly from the displayed price, resulting in what’s known as slippage.

That’s why it’s important to use market orders judiciously and consider the market conditions and the specific stock you’re trading.

2. Limit Orders: A limit order is an order to buy or sell a security at a specific price. When you place a limit order, you’re essentially setting a maximum price you’re willing to pay (if you’re buying) or a minimum price you’re willing to accept (if you’re selling). Your broker will only execute the trade if the security’s price reaches your specified limit.

Let’s say you’re interested in buying shares of ABC stock, which is currently trading at $50 per share. However, you believe that the stock is overpriced and you’re only willing to buy it if the price drops to $45 per share.

You log into your trading platform, select the ABC stock, and choose the limit order option. You enter the quantity as 100 shares and set the limit price at $45. You confirm the order and submit it.

Now, your limit order is in the system, waiting for the stock’s price to reach $45 per share. Once the stock price drops to your specified limit, your order will be triggered, and the trade will be executed at or better than your limit price.

It’s important to note that when using limit orders, there is a possibility that your order may not be executed if the stock price fails to reach your specified limit. However, it provides you with more control over the price at which you enter or exit a trade.

To place a limit order, select the security you want to trade, choose the “limit order” option, and enter the price you’re willing to pay (if you’re buying) or the price you’re willing to accept (if you’re selling).

3. Stop Orders: A stop order is an order to buy or sell a security once it reaches a certain price. Stop orders can be used to protect your profits or limit your losses. For example, if you own a stock and you want to protect your gains, you can place a stop order to sell the stock if its price drops below a certain level.

Here’s an example to illustrate how a stop order works:

Let’s say you decide to buy shares of XYZ stock, which is currently trading at $50 per share. However, you want to ensure that you minimize your potential losses in case the stock price drops. So, you place a stop order.

You log into your trading platform, select XYZ stock, and choose the stop order option. You enter the quantity as 100 shares and set your stop price at $47. By doing so, you’re stating that if the stock price falls to or below $47 per share, you want to automatically trigger a sell order to limit your potential losses.

Once you confirm the order, your stop order is in place. Now, if the stock price drops to $47 or below, your stop order will be triggered, and a sell order will be executed to exit your position. This helps you minimize your losses by preventing further decline in the stock’s value.

It’s important to note that a stop order does not guarantee execution at the exact stop price. In fast-moving or volatile markets, the actual execution price may be different due to slippage. However, the purpose of a stop order is to provide a level of protection and prevent significant losses.

To place a stop order, select the security you want to trade, choose the “stop order” option, and enter the stop price (the price at which you want the order to be executed).

4. Stop-Limit Orders: A stop-limit order is a combination of a stop order and a limit order. With a stop-limit order, you set a stop price and a limit price. If the security’s price reaches your stop price, your broker will place a limit order to buy or sell the security at your specified limit price.

Let’s explore how it works with an example:

Let’s say you decide to buy shares of XYZ stock, which is currently trading at $50 per share. However, you’re concerned about potential downside risk, so you want to set up a stop limit order to protect yourself.

You log into your trading platform, select XYZ stock, and choose the stop limit order option. You enter the quantity as 100 shares, set your stop price at $47, and your limit price at $46.

By setting a stop price at $47, you’re stating that if the stock price falls to or below $47 per share, you want to trigger a sell order. However, you also set a limit price at $46, which means that if the stock price drops and reaches your stop price, you want to execute a sell order at a limit price of $46 or better.

Once you confirm the order, your stop limit order is in place. Now, if the stock price drops to $47 or below, your stop order is triggered. At that point, a limit order to sell is placed at $46 or better, allowing you to have more control over the execution price.

Using a stop limit order helps you manage your risk by defining a specific exit point (stop price) and ensuring that you sell at or above a certain price (limit price). It offers an added layer of protection, allowing you to potentially secure a better selling price and avoid potential slippage.

However, it’s important to consider that using a stop limit order comes with its own set of risks. If the stock price drops quickly and bypasses your limit price without executing the trade, you might miss the opportunity to sell. This is known as the risk of non-execution.

To place a stop-limit order, select the security you want to trade, choose the “stop-limit order” option, and enter both the stop price and the limit price.

Understanding the different types of orders is essential to becoming a successful day trader. By knowing how to place market orders, limit orders, stop orders, and stop-limit orders, you’ll be able to enter and exit trades more effectively and manage your risk more efficiently. 

So the next time you’re ready to trade, make sure you choose the order type that’s right for you and your trading strategy.  

It’s your money.  We want you to keep more of it.  

I have some good news for you: The secret about market research and analysis 

You may feel you are not sophisticated enough to be a trader.

Perhaps you can’t envision understanding all the fundamentals of a company and think that will hurt you.  

You think there are experts on Wall Street who know more than you and you just can’t compete against them.

I have some good news for you…  

You do not have to be an expert in fundamentals.  You are a trader.  

You are not an analyst.  

And just between us being an analyst is no way near as fun as being a trader.  That is not what a day trader does nor has to do to consistently pull profits from the markets.

What do you have to know?

As a day trader, it is important to stay on top of market trends and news in order to make informed trading decisions.  We do start each trading day, going over the Big Picture of the market.  What is the market most concerned about?  What are the majority of market participants most concerned about for a select stock?  We game plan for news to hit the market and/or select stocks that will make the market or select stocks stronger or weaker.    

As I write, the market is most interested in inflation.  When we get data that hits the market that shows inflation is improving, the market will most likely trade higher.  As I write, for select regional bank stocks the market is most interested in the amount of their deposits.  When data hits the market that deposits are increasing, the regional bank stock usually trades higher.  News can impact market prices so we educate ourselves on what will move the market and stocks.  But these are things anyone can learn how to do. They are not overly time consuming, nor does it require a master’s degree in economics.  

Admittedly, at our trading firm traders receive research reports sent to them by the top research firms on the Street.  Let’s say that Apple has just reported earnings and a trader wants to learn what the expert research analysts think about their earnings.  Well research from the top research firms are sent to their email inbox for them to read.  This way they can make better trading decisions on Apple in the coming days and weeks.

However, it is important for traders not to fall in love with their opinion after doing research.  

Price action is king for day traders.  And you do not need to do any research to follow the price action.    

If you think stock XYZ should trade higher and it doesn’t, then a solid day trader will cut his position and then reevaluate.  This is not value investing. We do not hold positions that are trading against us and waiting for the price to rebound.  

The market does not care about your opinion.  You are one player in a game played by many who have varying objectives.  

We are day trading.  Day traders respect price and exit.

Price action is king.

In fact, there are some traders at our firm who can trade profitably just by watching the price action in a stock.  Additionally, if you asked them what the stock does, they may not know the answer.  Yet with strong trading skills and a respect for the price action they can profit consistently.  

We are traders.  

What You Need to Be a Successful Day Trader

We, SMB Capital, would NEVER allow anyone to start trading our firm’s capital without comprehensive education and training.  

It is dangerous to start trading before you are properly trained.

Do you want to know the thing that bothers me the most, doing what I do, and having the position that I have in the trading community?… 

It’s the emails I have gotten over the years from new traders who lost $50,000 plus and now are reaching out to me for guidance?  Getting these emails really bothers me, perhaps more than anything, as I can imagine how much pain this has caused the new trader. 

In their emails, they often share their regret of not finding SMB Training, our education arm, sooner to help prevent their excessive and unnecessary losses.  

Let’s try and end all of that…right here…together.  

I do not want to see one more email like this.  You do not want to be that person writing one of those emails to me or someone like me.  

Let’s ensure you know you must have the proper day trader education before you risk your hard earned money in the markets. 

And the best way to learn how to day trade is to learn directly from a firm like ours. Why? Because we have 50+ professional traders and we’ve been profiting consistently from the markets for many years, through all kinds of market conditions. Our traders are the real deal, and the strategies they trade have stood the test of time. So head over to TradingWorkshop.com to claim your free spot on our in-depth workshop.

Okay so we are on the same page that you MUST have a solid trader education to begin day trading.  

So the next logical question is: what do you need to learn?  

There are all these videos on YouTube.  There are all of these tweets on Twitter with trading lessons.  People are posting charts, with lines all over them, and they make no sense to you.  You think: how can anyone make sense of all those lines?  And there all of those trader education books.  And the courses, there are courses for everything.  

Let us help you here with what you need to learn (at a minimum) to start day trading.  

Stock Selection

As I wrote in One Good Trade, “You are only as good as the stocks you trade.”  You can be the best trader in the world, but if you are trading the wrong stocks you will not make money.  Conversely, you can be a new trader trading the best stocks and profit.  

New traders must learn how to spot and trade the best trading stocks for each trading session. For example, with our training, new traders are prepared for the trading session with an AM Meeting where we highlight the best stocks and best levels for them to trade.   

Tape Reading

Tape Reading is a study of the order flow of a stock.  When traders learn Tape Reading they can examine the buying and selling being done in a stock and find areas where the stock is more likely to go up or down.  This is a skill they learn, like a basketball player learns ball handling.  Can you be a solid basketball player without learning how to dribble?  

With this essential skill for day trading, traders can position themselves to find excellent risk/reward trades at prices to help grow their trading account.  

Technical Analysis

Technical analysis is like studying the heartbeat of the market—it involves examining historical price and volume data to identify patterns, trends, and support and resistance levels. By using indicators and chart patterns, traders can make more informed decisions and gain insights into potential price movements, helping them navigate the exciting world of day trading.  At our firm, we make trades only after considering the longer term and intraday charts based on our technical analysis skills.  Our best trades tend to occur when these timelines align.  

Trading Setups with Real Edge in the Real-World by Real Traders

Unfortunately, too many traders start to trade deploying strategies that just do not work.  Perhaps they learned strategies from a trading educator that used to work in the past. We teach our new traders 20 setups used daily by profitable traders on our prop desk.  

We teach them strategies that have real edge in the real world by real traders. 

They experiment with each of these trades, find the ones best for them, and then build a PlayBook around their best trades. 

PlayBook (Build a business plan!)

Trading is a business.  Every trader needs a business plan to run their trading business.  That business plan is your PlayBook. 

Each trader should build their PlayBook, a detailed compilation of their favorite setups, in a comprehensive template that I created in my second book, The PlayBook.  The PlayBook becomes your trading business, setups for you to take with edge, which your job is now to execute.  

Trader Psychology

Trader psychology plays a pivotal role in the success of traders.  This is why we have worked with the best trading psychologist in the country, Dr. Brett Steenbarger, to help our traders. It’s not just about analyzing charts and executing trades—it’s about understanding and managing our own emotions, biases, and mindset.  The optimal mindset for a trader is: focused, open-minded, self-aware, calm, and excited for the trading opportunity.  

Peak Trader Performance    

We teach our traders to come to the market in their peak performance states.  They study what leads to them trading at their best, as well as the setups they trade best.  They are taught best practices that will help them be at their best during market hours.  Traders can improve their performance by measuring and improving their sleep, daily mindfulness practice, exercise, healthy eating, recharging, and constructing a rewarding life outside of trading.

Risk Management 

You must determine your risk for each trade, before you enter the stock.  Please see the section on risk management in this article to learn more.     

Trade Review

Our firm and traders have succeeded because of our culture to improve daily.  SMB has developed innovative techniques to review our trading most effectively, which has driven our performance.  

Each trading session gives traders an opportunity to improve.  

Traders are taught daily review best practices to get the most out of each trading session.  They are taught techniques like: Daily Report Card, trading journal, PlayBook, Book of Charts, monthly review, video replay, EZ Money trade reviews, and learning from other traders.

Technology

After you find your favorite trades, and build a PlayBook, traders should use technology to find more of these trades, trade them more often, and trade them with more size.  Traders can build alerts, scripts, and automated models to do just this.  

Learn from Senior Traders (who can teach)

Trading is not easy.  Lean on those who have succeeded as traders AND teach traders to become profitable.  Senior traders have gained the experience to help guide you on the trades worth taking and mastering.  

I will just share based on my experience, too often elite traders are not very good teachers. You will not learn from a successful trader who cannot teach.  

Learning from senior traders who teach well will give you a better chance to succeed and accelerate your learning curve.   

This is the minimum you need to learn before trading live.  From here there are more advanced topics you will learn as you progress as a trader.  But you will have time to learn them after you develop consistency as a trader.    

Here is advice from me on: How to properly start trading a live account.

The Essential Ingredients of a Profitable Day Trading Strategy

I am often asked what is the most important factor to trade successfully.  Having run a trading firm for over 18 years the answer couldn’t be any clearer to me…

Develop a trading strategy(s) with edge. 

You have to be making trades that actually work.  You have to be taking trades that actually have edge.  Trades that have real edge in the real-world of trading being made by real traders who are making real money.  Period.  Full stop. 

And then when you have developed day trading strategies that have edge you have to be taking only them.  You must be patient and wait for these trades to visit the market.  You cannot mix your trading results with other trades that don’t really have an edge.  You must have the discipline to be able to wait for these trades where you have an edge and not take others.

Think of it this way.  You decide to open a pizza parlor.  You have saved your whole life and developed an amazing recipe.  Your pizza is delicious.  You open up and people love it.  There are lines out the door.  And then someone walks in and asks for… sushi. 

What would you do?  

I would hope that you would politely respond by apologizing that you don’t make sushi.  What you don’t do is try and make something that you do not make.  (Unless of course you are in the business of being one of those diners that has like a 100 page menu.)

Yet unprofitable traders do this all the time.  

They do not stick with just their best trades and rather try too many other trades for which they have no edge.  And this is often the reason they consistently lose money.        

Here is how we teach traders on our desk to develop day trading strategies for themselves.  

First, we teach them the basics of trading.  We help them build a strong foundation.  They learn everything they need to learn about trading.  We teach them:

  • Stock selection
  • Risk Management
  • Tape Reading
  • The principles of One Good Trade
  • How to build a PlayBook
  • Trade Review
  • The easiest setups with edge to start trading
  • Trading Psychology
  • Technology
  • Technical Analysis
  • Trader Peak Performance

They build a solid trading foundation. 

Then we expose them to numerous trades that have a real world edge that are made by real traders, who make real money.  Trades that our professional traders are using daily, and in the present market conditions, to consistently make money.  We ask new traders to experiment with each of these trades on a trading simulator.  

We ask them to pay attention to the trades that make the most sense to them.  The trades that are coming easiest to them.  

The numerous trades that we expose them to are very different.  Some are very fast moving trades.  Some require more analysis.  Some are held for long time periods, some very short.  

We ask the traders to determine the types of trades that are best for their unique talents and personality.    

We are all different.  We all have different strengths and weaknesses.  We want our traders to build from their unique strengths.  This is known in economics as “match quality”—the degree of alignment between the traits of an activity and the traits of a person.  

So if some traders are very fast thinking, we encourage them to do more scalping- a strategy for this type of thinking.  For example, one of our top traders is so fast that a top market making firm shut off his access to their routes because they couldn’t keep up with him.  They literally refused to do business with him because he was too good- too fast.

If traders are more analytical, then we encourage them to find trades that accentuate these talents.  One of our seven-figure-a-year traders was notorious for doing hundreds of hours of research on M&A trades, which were his strongest trades.  

In short, after being exposed to these different trades with edge our traders determine their niche.  Then they build a PlayBook based on this niche and start trading with capital.

They start trading with a small amount of capital.  

After a trader determines their niche and trades live with their PlayBook, they work to improve it.  They measure their trading stats on all of their trades to ensure they have an edge.  They build PlayBook trades of the best trades in their niche.  They study, study, study, the heck out these best trades.  

They watch video replay of these trades, by recording their trading screens.  Yes! They record their trading and watch it back.  

They parse out the key variables of these trades and then backtest them.  They see what the historical edge is for these trades.  They learn what variables are indeed most important about trades and adjust their trading based on these results.  

They use technology to help them improve their results.  They build alerts that alert them in real-time if their best trades are present.  These alerts are signaling that their favorite trades are available to them in the market.  

They seek out senior traders for mentoring on how to improve their trading.  They communicate with senior traders in real-time about trades to make the best trade decisions.  

This is how you build a trading edge, a trade that pulls profits consistently from the market.  

And if you want to learn (in step-by-step detail) 3 of our top strategies that have a robust, proven edge, head over to tradingworkshop.com now. You won’t get better education than from a firm with over 50 professional traders who pull in millions from the markets month in and month out. And it’s 100% free for you to join, so if you’re serious about trading, you can’t afford to miss it. 

Day Trading Strategies

There are many different day trading strategies that consistently profitable day traders use. Let’s give you a taste of the more frequently used day trading strategies so you are familiar with many of the basic winning strategies.

Scalping: Scalping is a day trading strategy that involves making multiple trades throughout the day with the goal of profiting from small price movements.  The idea is to buy a stock at a low price and sell it at a slightly higher price, capturing a small profit.  These trades last minutes to hours, as they are held for a very short period of time.  With a small amount of capital you can make significant profits utilizing this strategy wisely.  

Let’s share an example of a scalp for you, using the chart below.  A stock trades strongly with a push higher, then pulls back slightly, and then starts to go back up.  We enter (see green arrow), sell 1/2 at its prior high (see Exit First 1/2), and sell the remainder with a break of the trendline (see Exit Second 1/2 on trendline break).

This is an example of a simple scalp trade.  

To learn more about scalping watch one of our most highly watched videos of all-time:

 

Momentum Trading: When I began as a trader (1997), I was taught to start trading live with this strategy. Momentum trading entails recognizing the direction a stock may move and joining in that direction. 

If you see a stock trending up for a period of time then you join the movement, by buying the stock.  When the stock stops going up, then you sell it.  

You are joining the momentum and exiting the trade when the momentum to the upside subsides.  You do not care where the stock goes after you sell it as your job is just to follow the momentum of the move and then exit.

Let’s share an example of a Momentum Trade, using the chart below.  $NFLX gets above an important level and you buy expecting the stock to trade higher.  Others are likely to buy because the stock has trade above an important level.  Others are likely to jump into this stock and join the momentum of the stock to the upside.  

We buy (see Buy) above but as close to $350 as we can.  We sell (see Sell) when the upward momentum dissipates. In this case the stock cannot hold above an area it had previously.  We conclude the momentum to the upside has slowed for the time interval.  We sell.  We do not care where the stock trades after as we have made a successful momentum trade, which was our goal.        

Range Trading: Range trading is a day trading strategy that involves buying and selling stocks within a specific price range. The idea is to identify stocks that are trading within a defined range, with the expectation that their prices will continue to move within that range in the near future.

Let’s share an example of a Range Trade, with our chart below.  

We find a stock that is not trading above the top of a range at the $336.90 area.  We find a stock that is not trading below the bottom of the range near the $336.11 area.  

With a Range Trade we buy (see Buy) at the bottom of the range and then sell (see Sell) at the top of the range.  

This is an example of a simple yet effective range trade.   

Breakout Trading: You are waiting for a stock to trade above a certain price.  And waiting and waiting.  And then it finally clears a price that it could not trade above.  When it does you buy the stock and make what is called a Breakout Trade.  This trade works because many are watching for the stock to trade above a certain price before buying.  

Trading above this price is a signal for many in the markets that the stock will trade even higher so they buy.  Two variables other than price we use to make the best Breakout trades are volume and RVOL.  We want to see the stock doing unusual volume before the breakout, which we measure with RVOL.  And we want to see elevated volume when the stock breaks above this important price confirming the breakout will continue.  

Let’s share an example of a Breakout Trade, using our chart below.  The stock finally breaks above a level that could not, indicated by the white line.  When the stock clears this area we Buy (see Buy).  Also notice the volume increasing, indicated at bottom of the chart.  When the stock is unable to hold a prior level we Sell (see Sell). 

This is an example of a solid Breakout Trade.  

Here is a video from 3 prop traders making a profitable Breakout Trade in $TSLA as an in depth example for you.  

 

Fading or Mean Reversion Trading:  You are sitting in your trading seat and you see a stock drop precipitously and you quickly conclude that the stock is oversold.  Fade trading is a strategy where you would buy looking for the stock to quickly trade higher as it has sold off too much too quickly. 

The price is not sustainable at this level because of price and time.  

During the trading day stocks get oversold and overbought and you can deploy a trading strategy for it to quickly revert back to a more appropriate price.  This is a very profitable and common core strategy for day traders to use.  

Let’s share an example of a Fade Trade, using the chart below.  

This stock is down 26 percent in 4 days and has sold off way too much in our judgment.  When the stock stops going down AND starts to trade higher we Buy (see Buy) with a stop against the prior low.  In this case, we see the stock trading above an area that it could not prior.  We Sell (see Sell) when the stock trades near our target, which in this case is close to where the stock opened the trading.  

This is an example of a Fade Trade.   

 

Breaking News Trading: News quickly hits the markets that is unusually positive and unexpected.  This is breaking news.  

When this happens, day traders have a trade decision whether to buy the stock quickly and then sell the stock when it stops trading higher.  Quickly deciphering the breaking news and piecing together what is most likely to happen to the affected stock, sector or market can lead to very profitable trades.  In the prop trading space this is a strategy that can be used by traders to bank 8-figures-a-year in profits, while also being very consistent with their returns.  

Let’s offer an example of a Breaking News Trade, using our chart below.  

News hits the wires that Microsoft is going to help a company with a key new initiative.  We quickly conclude that this is a major positive for the stock, if true.  We immediately Buy (see Buy).  We Sell (see Sell) when the stock cannot hold above an area that it could prior.  

This is an example of a Breaking News Trade made by day traders.    

Here is an example of the 3 Best Trades in a Breaking News Opportunity.   

 

News Catalyst Trading: A news catalyst trade is available when a stock has had unusually good or bad news that was unexpected by the market.  An example of this would be a stock that has recently released earnings.

Let’s say stock XYZ released earnings that they have beat expectations on the quarter and are raising guidance for the entire year.  And let’s assume that the market was not expecting such a positive report.  As a day trader, we might enter the next trading session looking for ways to buy this stock and ride it higher because of this positive news catalyst.  

It may take the biggest traders in the market days to weeks to accumulate the amount of shares they wish after this positive news catalyst.  So as day traders we can join the buying and ride it higher.    

Let’s share an example of a News Catalyst Trade, using the chart below.

This stock reported an amazing earnings report.  They beat on future guidance, revenue, and EPS.  We conclude big money traders will want to own this name and it will take them potentially days to accumulate a position.  

We Buy (see Buy) when the stock shows intraday strength and trade above the 52 week high.  This is a buy signal for us.  We Sell (see Sell) into the close as our trend line was never broken.  There was never a reason to sell the stock.  We close our position at the end of the day as day traders rarely take overnight positions.  

This is an example of a solid new catalyst trade.      

Technical Analysis Trading:

Price and volume create trading patterns that often repeat in the market.  Students can study the best trading patterns that repeat to develop trades based solely on these technical patterns.  We call these Technical Analysis Trades.  These are some of the favorite trades for retail traders. 

Let’s share an example of a Technical Analysis Trade, with the chart below.  

In this trade we use the technical analysis indicator 2 Day VWAP (see 2D VWAP).  This is a powerful indicator, particularly for day traders.

When our stock trades near 2D VWAP we Buy (see Buy) and then we Sell (see Sell) when the stock shows weakness.  In this case, it fails to hold above an area that it had shortly prior so we exit as a day trader.

This is a straightforward example of a technical analysis trade made by a day trader.   

After learning these trades (and more) you want to follow these steps:

  1. Experiment with these trades on a simulator.
  2. Determine the trades best for you and your trading career.
  3. Build your PlayBook with these trades.
  4. Start trading them live with very little capital.
  5. Measure these trades by keeping excellent trading stats.  Tag and then measure all of your trading strategies.
  6. Increase your size and risk and frequency in the trades that have the most success.
  7. Eliminate your worst trades.
  8. Expand your PlayBook by studying new trades and adopting them into your business.  

Trading is a business.  Treat it that way.  Put a professional system in place to build your business responsibly and effectively.     

If you want a short-cut to learning how to trade profitably, we invite you to attend our free, intensive trading workshop, where we’ll teach you the exact ins and outs (in step by step detail) of our 3 top performing trading strategies. You’ll learn the specific rules of entry and exit in far more detail than we can provide here. Reserve your free seat here.

Risk Management: You are going to be wrong

You can learn and train and then build a PlayBook of effective day trading strategies, but without proper risk management you cannot succeed.  

You cannot succeed as a trader without solid risk management.

You are going to be wrong on trades.  You are going to be wrong on many trades.  This is the life of a day trader.  You must learn to cut your losses quickly and keep your losses in check.  

Risk Management is essential on every trade if you wish to become a consistently profitable day trader.  Before each trade, a trader should determine their stop loss- where they are wrong on a trade.

Before each trade.

The trader should also determine how much they are willing to lose on a trade.  We call this their maximum loss on a trade.  This maximum loss should be a small percentage of your overall capital.

For example, let’s say that you have a day trading account of $50,000.  You should determine what percentage of this $50,000 you are willing to lose on a trade.  A good rule of thumb, when you begin as a trader, is not to lose more than 2 percent on any one given trade.  As you gain experience you can increase your risk, perhaps risking up to 5 percent on a trade. 

As traders we live to play another day.  

We do not allow one trade to blow up our trading account.  

On our desk traders set a maximum loss per day, per trade, per week, per month, per strategy.  They work with the firm’s risk manager to set these limits.  The trader and the risk manager agree to these limits and document this agreement in writing.  Traders MUST stay within these limits.  If they do not, then there are consequences.  Their risk will be reduced by the firm or worse, until they can trade within their limits.  

In fact, not staying within your risk limits is a fireable offense.  I share this to open your eyes to how serious risk management is for your trading. 

The risk manager is there to help the trader during his worst moments, keep him in the game, stick to the limits he agreed to, and keep more of their profits.  Bad trading, bad trades, losing trades, bad moments are bound to happen.  But losing control of risk during these inevitable bad beats is not professional nor acceptable. 

Sorry for the tough love there.  But it needs to be said.   

Put simply, you cannot become a sustaining successful day trader without solid risk management.  

Stock Selection: What are the best stocks to trade as a day trader?

“You are only as good as the stocks you trade.” 
Mike Bellafiore, One Good Trade

 

Do you ever feel like you are trading the wrong stocks?  

And if you were in better stocks you would do so much better?

Well you are right.  You do need to be in the right stocks and being in them makes all the difference.

The best stocks to trade are what we call Stocks In Play.  There is a lot to say here on Stocks In Play, but let me give you a primer.  

Stocks In Play are stocks that have a catalyst.  Either a news catalyst or a technical catalyst. We stick to trading these stocks for the best ROI (return on investment) as a trader.

Stocks In Play offer us the most trading opportunities as day traders.  Stocks In Play often offer us the best trading opportunities as day traders.  You can find them every day, in every different kind of market, offering opportunities daily.  

A stock with a news catalyst can be a stock that has recently released earnings.  It is best to find stocks that have unusually good or bad news that was unexpected by a majority of market participants.  An example would be a biotech company, XYZ, just concluded a successful research trial with positive results with a drug covering a widespread disease.  Big money traders will want to jump in to take a position with this positive news catalyst. We will want to trade this stock as a result along with them.   

Also, if a stock has a technical catalyst this can be a great stock to trade. A technical catalyst is one where market participants are looking for a stock to clear a certain price and it hasn’t for a significant period of time.  And then the stock finally does.  Market participants will want to buy this stock when it does.  This can make for a significant technical catalyst to trade a stock.  

We confirm that a stock is In Play by looking at Relative Volume (RVOL).  RVOL measures the increased volume that a stock is doing on a given day.  We look for stocks that have an RVOL >3.  This means that the stock is doing more than 3xs the average volume on this given day at the given time than the average day.  Increased volume means a majority of market participants are more interested in this stock on this day.  This allows stocks to move more during this trading session, which gives us more opportunities to profit and a better risk/reward on our trades if we know what we are doing.   

You can be the best day trader in the world but if you are in the wrong stock(s) you will not make money.  Conversely, if you are in the right stocks you are much more likely to profit.  

The Attributes of a Successful Day Trader

Many of you may be wondering whether you have what it takes to be a successful day trader.  

Will you be one of those traders who tries and fails?  

Or one of those traders who goes on to become a consistently profitable trader?  

I thought it might be useful to share the attributes we search for when hiring traders at our firm.  This may help you judge whether you have what it takes to become a consistently profitable day trader.  

At our firm SMB Capital, we hire new traders to trade firm capital. What attributes do we search for?

1. Growth mindset

The best traders seek to improve everyday, heck every trade.  Each trade is an opportunity to learn, no matter if you profit or lose money.  The trade is giving you information from which you can improve.  You paid for that information with your market tuition.  Seize that knowledge.   

2. Hunger to make money

I will never forget reading the yearly review of one of our best traders after closing his first year of making over one million dollars in trading profits.  In his yearly review, this trader mapped out exactly what he needed to do to reach the next level in his trading.  

You might think after making over one million dollars in a trading year that this trader would have been satisfied.  

He wasn’t.  

He knew he could be even better.  He was hungry to be even better.  Fast forward a few years, he has gone on to become a multiple 8-figure-a-year trader.

3. Passion for trading

On some Saturdays I come to the office to catch up on some work.  Each weekend visit, our best new trader is here.  He is reviewing the prior week of trading.  He is doing the work when no one is around that makes him better.  

That is a passion for trading! 

I took four passionate traders to a recent Yankees game with my son.  During the entire game these traders talked about recent trades and trades on the horizon. For the entire game.  And they were all Yankees’ fans.  

That is a passion for trading!

4. Controlled aggressiveness

There is a mural we commissioned that hangs on the walls of SMB that encourages, “If you $EE it, swing the bat hard.”  When you spot a trade that has an asymmetrical risk/reward, the best traders go for it.  They make themselves uncomfortable with risk and push it. 

 5. Ability to focus for extended periods

Day trading is a game of processing a lot of information quickly and waiting for moments when you have an edge.  As we say, those trades just “fall in your lap” if you are able to wait for these right moments.  Focusing for long periods of time is necessary to spot these moments and then make easy money trades. 

6. Ability to process a lot of information quickly

There are many different ways to make money as a day trader.  But whatever the strategy, the best day traders are able to process a lot of information quickly and more clearly than others.  Basketball coaches look for players who are tall and long as this gives players a very real edge.  For day traders, thinking quickly and processing information quickly is a real advantage. 

7. Diligence

Here is a red flag that leaders at our firm notice.  

We are reviewing our recent trading.  We ask a new trader what they traded.  We ask a simple question, such as: what was the short interest in the stock?  

The new trader cannot answer this question.  

That is not acceptable and we all take notice. When you are trading a stock there is certain information you need to know.  If you do not take the time to learn this information you will not trade as well.  Being diligent is crucial. 

8. Work Ethic

What does it mean to work hard as a day trader? 

To become a top day trader requires completing a daily routine each day of effective best practices that will drive your improvement.  These improvements compound over time.  Without the work ethic to finish this daily routine religiously you will never experience the power of compounding improvement.  Sadly, you will never learn how good you can be as a trader. 

9. Equanimity

How do you respond after a trading loss?  

Do you get upset, cuss, blame others and proclaim the market is rigged against you?  Or do you calmly review each trade and try to learn and come back for the next trade as an improved trader?  

Each trade offers an opportunity for you to learn.  But it is only the traders that can quiet their minds and pull the lessons out from each trade who can become their best trader.   

10. Gr8 teammate

We seek traders who will share, celebrate the successes of others, and make others at the firm better.  This makes us all better.  When you are in an environment of sharing and growth this makes you much better than you can be by yourself. 

Do you feel that you have most of these qualities? If you do, then you need to attend the free intensive workshop we’re currently running, which teaches you 3 of our top performing day trading strategies in exact, step by step detail, so you can start using them in your own trading. Test them out for yourself and start building a consistent track record. We’re always looking for promising new traders to hire! Reserve your free spot now.

Day Trader Tools and Resources

You think you want to start day trading.  But you are not sure what tools or resources you will need to give yourself the best chance to succeed.  You know intuitively that if you do not have these tools and resources then your goal to become a profitable day trader will be thwarted.  

This is savvy thinking by you.  

Let’s offer a primer for you so you have the tools and resources to give yourself the best chance to succeed.  

Here are the tools and resources you need as a day trader:

1. Online broker

An online broker will help you set up a trading account and gain access to the markets.  6 examples of online brokers who cater to new day traders are:

  1. ThinkorSwim
  2. TradeStation
  3. Interactive Brokers
  4. E-Trade
  5. Fidelity
  6. Robinhood

With an online broker it is important to do your due diligence on trading fees.  You will need competitive trading fees on trade execution, short locates, margin interest, and other fees.  Ask what ALL the fees are and how they compare to their competition.  Also, ask how these fees will improve as you trade more. 

As you gain experience you may seek out brokers for high-volume, active, advanced day traders such as: Lightspeed, CenterPoint Securities, Cobra Trading, SpeedTrader, and Interactive Brokers.   

2. Online trading platform   

Most online brokers will offer you a trading platform owned by their company.  You may want to investigate others or may need a more advanced day trading platform after you gain experience. A reliable trading platform is necessary because during the most opportunistic trading opportunities many trading platforms go down.  And you will see traders on social media complain that their trading platform is down and are unable to trade.  

This can be very costly if you cannot exit and enter positions when you need to.  

Some advanced day trading platforms are: LightSpeed, DAS Trader Pro, Takion, Sterling Trader Pro, Reaktick, Wolverine (WEX).

3. Alerting Solutions

What are trading alerts?

A trading alert is as it sounds.  It alerts you when a stock hits a certain price that you have set.  You do need the functionality to set alerts on your trading platform as a day trader.  Most online trading platforms will offer the ability for you to set alerts.

For advanced day trading you may want to set custom parameters for when you want to be alerted to a stock.  For example, perhaps you want to see all stocks that hit an intraday high, after 11AM, that also have an RVOL greater than 3.  You can set alerts for this.  

Many trading platforms have this built into their platforms.  However, some advanced day traders seek a more sophisticated alerting solution, where custom filters can be built.  Solutions for this may include: Trade Ideas, TradeStation, and Bloomberg.

4. Charting software

Many of the online trading platforms will offer a suitable charting platform for which to start day trading.  For example, ThinkorSwim has an excellent charting solution that many traders on our desk use to supplement their trading.  Other charting solutions are: TradingView, eSignal, TC2000, TradeStation, Stockcharts.com.  

5. News Sources

You need to be connected to a reputable news source.  A source where you can quickly look up if there is breaking news on the market or stock you are trading.  Some popular news services are:

  1. Trade the News
  2. Bloomberg
  3. CNBC
  4. Benzinga
  5. Briefing.com
  6. Marketwatch
  7. Reuters

6. Backtesting and Automated trading tools

You should have a platform that allows you to backtest strategies.  Perhaps you develop a trading thesis that you think could be profitable.  Well you want to test this theory by running a backtest on whether your thesis would be profitable based on historical data.  

It is optimal to have a solution, and we have this for our traders at our firm, where from your desktop you can generate a thesis, backtest it, forward test the idea, and then run an automated strategy in the markets.  

7. Trading Analysis tool

Our traders keep detailed trading statistics.  They tag and then measure all the trades that they make.  At the end of the day, week, month, they spit out reports on their trading stats to see where they are doing well and poorly.  They make adjustments from here to boost their PnL.  Trading statistics solutions include: Tradervue and Edgewonk.   

8. Comprehensive Training

You need proper training before you start trading.  Build a strong foundation with a solid trader education course.  Experiment with different strategies that have edge used by real traders, in the real world, who make real money.  Find your trading niche.  Seek mentoring on this type of trading.   

9. Do not forget

You will need a powerful computer or laptop.  Don’t skimp on this please as when the market is most volatile you do not want your computer to crash.  A comfortable chair is essential for most day traders.  A headset that can connect to an audio chat is rampant on our trading desks.  

Okay so those are the tools and resources you need to get started the right way as a day trader. 

How to Level Up Your Day Trading with SMB

Can you make money as a day trader?  Is day trading something you could really succeed at?  I do hope we have offered a valuable perspective on these important questions for you.  

I want to share a story from our trading desk in NYC that can make all of this even more real for you.  And give you even more insight on whether you can do this.

This real story from our trading desk may have meaning for you as you decide whether to day trade.  

This is a real-life story from our prop desk of two 2nd year traders from our firm, who I recently had lunch with to celebrate a month where they each made over 150 thousand dollars in net trading profits.  

We chose a pretty nice steakhouse near our 5th avenue office in NYC as they deserved it.  You know, I remember sneaking out to meet these two young men for breakfast, while on a family vacation in Florida, before they were at our firm.  I remember how badly they wanted a seat on the desk.  They had had a few ordinary jobs in the workforce that were… how should we say….. not satisfying to them.  

I know there are some reading right now who are not at the job they want and would love to make a change.  They disclosed that they were working as hard as they could on their trading as independent traders, with inconsistent success.  As they shared during our lunch, and I didn’t know at the time when we hired them, they were both 60k in debt, most of it in credit card debt.  

Let me say that again: they were both 60k in credit card debt.  

During our breakfast, they implored me to give them an opportunity for a seat on our desk.  Having interviewed and chatted with hundreds of traders over the years, I could see their potential ability, drive, and how they stood out from other candidates.  

Further, they demonstrated the diligent work they had done to date.  In fact, they dropped a large PlayBook with their favorite setups on this Florida breakfast table at Maggie Mae’s.  Remember The PlayBook is a compilation of a trader’s favorite setups broken down into clearly defined variables.  And remember the development of a PlayBook is a best practice we teach to our traders that helps them thrive.  And here these two developing traders had created their PlayBook, but yet were not a part of our firm.  

They were impressive.  They stood out.  Man I loved them.    

But we do not immediately hire transitioning professionals- those who have job experience after college and are looking to transition into a new job- without them earning a seat on our desk.  No matter how impressive and persuasive they were, there is a process at our firm to EARN a seat on our desk.  The seat is extremely valuable.  It MUST be earned.

They had to be trained properly by SMB.  

They had to stand out in their training with SMB.  They had to show some skill and potential while trading live- even if they weren’t consistently profitable yet.  If they did these things, then they could be hired for the desk.  

And you know what…they did.  They were.  And here we were celebrating their success.     

I asked them at lunch how they were now doing financially and they were proud to share that they had paid down all of their debt and each had 400k in the bank.  They had gone in their words from 60k in credit card debt to now 400k in the bank.  

Think about that.  

Think about the importance of that.  They had changed their financial status.  

They were so proud to state they now had a few years of savings to live off of so they could just focus on improving their trading.  I laughed and cracked, “ You have much more than that.” 

I reminded them that they were just getting started.  I congratulated them: “You should be very proud of your trading success.”  They had literally changed their lives.      

These same two young men, with the same work ethic and talent and desire lifted from the environment of independent trader with a lack of proper trader education to properly trained like a professional firm trader made all the difference for them.  They would have most likely been another one of those failed traders you read too much about- despite all their hard work and effort.  Now they were thriving, with 400k in the bank, and realistic goals to become even better.  

And I was certain they would achieve them and excited to watch them grow. 

Perhaps at the start of this article you knew little about day trading or weren’t exactly sure how to start the right way.

In this article you have learned:

After learning about all of this we do hope you are armed with better information and knowledge to move forward. We invite you to learn more about day trading by attending our free online trading workshop, where we share 3 top trading techniques (in exact, step by step detail) our New York City proprietary desk uses to profit consistently from the market virtually every month.  

From all of us at SMB, train and trade well!

FAQs on Day Trading

 

What are the best times to day trade?

The best times to trade are when volume is high, there is ample liquidity in stocks, and stocks are volatile.  Thus, the best time to day trade is on the open from 9:30AM to 10:30AM EST.

The hardest for most day traders to trade is midday.  Traders must be more selective with their trading.

The close of trading from 3PM to 4PM EST is the second best and also opportunistic for day traders, like the open.  

How much money do I need to start day trading?  

You can start with a few grand and seek consistency.  Trade selectively and focus on only a few setups that have edge.  Build from your success.  

If you build consistency and are ready to day trade for a living, then have at least $50k and two years of living expenses in the bank.  Or apply to a prop trading firm, like SMB Capital, to trade firm capital.    

How do taxes work for day traders?

Day traders pay ordinary income tax on their profits.  Day trading is considered short-term trading (holding for less than one year) and is generally treated as ordinary income.  

Can I day trade with a full-time job?

You can.  

Consider trading that does not require sitting in front of screens for 8 hours a day. Consider strategies that you can trade for a short period of time, like day trading only the open.  Learn scalping strategies to trade on the open or other strategies that you can deploy during a limited period of time. Also, you might consider automating your strategies so you can keep that full-time job. 

What’s the best way to move forward with day trading?

The best way, by far, is to learn from those who are already consistently profitable. There are many traders online who will claim to be professional traders who can teach you, but there are very few professional trading firms who have stood the test of time and grown numerous 7 and even 8 figure- per-year traders. 

SMB can teach you how to day trade successfully: Join us for free at TradingWorkshop.com.

How do you control your emotions as a day trader?

There are techniques traders learn to minimize periods of over emotionality.  They learn visualization techniques.  They practice mindfulness.  They take scheduled breaks throughout the day.  This allows them opportunities to calm down and reset.   

We teach our traders to use their emotions as information.  It is optimal to remain calm as much as possible.  But anyone who has traded professionally knows that it is not realistic to never get angry or frustrated while trading.  For example, perhaps a trader recognizes that when they get really frustrated with the movement of a stock the stock is about to reverse.  This is information they can use to profit in markets if they are self-aware of their emotions.      

How do I manage risk as a day trader? 

We ask our traders to set risk limits for each trade, day, week, month, strategy.  These guardrails protect traders for when they are not trading well.  Traders must respect these risk limits.  You should as well.  

Should I use leverage in day trading?

If you are a consistently profitable trader, then yes.  But you should make sure when using leverage you are adhering to your risk limits.

If you are just starting, using leverage is fine as long as you are respecting your risk limits.  Please educate yourself on any fees associated with using leverage from your broker.  And again you have to stay within your risk limits at all times.      

How does day trading differ from other types of trading?

Day traders hold their trades for a shorter period of time.  Day traders can be more efficient with their capital.  Day traders can experience a higher return on capital than other longer term types of trading.  Day traders are not burdened by overnight, uncontrollable price action and news.  Day traders rely more on price action than fundamentals.  

What are the best markets to day trade?

US equities offer the most opportunity of any of the markets.  They move the most.  They have the most stocks to trade.  They are liquid. They offer the most opportunities for traders. 

Nothing against other markets and there are other markets and products that are opportunistic.  In fact, many traders apply SMB trading principles to other markets and products profitably.   

What are the most effective technical indicators for day trading?

Traders on our desk use VWAP and AVWAP quite often to make better trading decisions.  They also rely heavily on RVOL.  And of course we have found that Tape Reading is the best indicator we can use with our trading.   

How do I track and evaluate my trading performance?

Many of our traders use Tradervue to track their trading performance.  They tag and measure all of their trades with Tradervue.  A little known fact about Tradervue.  It was created by a software designer who read One Good Trade, learned about the SMB ChopTracker, which we used to track our performance, and then became inspired to build Tradervue.  

How do I handle overnight positions and gap openings?

One of the huge benefits of being a day trader is you can start fresh each trading session.  You are not burdened by overnight gaps that you cannot control.  If a stock is gapping up a ton, you can trade that stock from where it opens and find excellent risk/reward opportunities.    

How do I handle slippage and liquidity issues?

When starting, stay away from stocks that have a minimum average daily volume of less than 1 million shares traded.  

As for slippage, before you enter a trade ask where you can realistically exit if the trade goes against you.  Check to see if there will be market participants who will take your stock.  We look at the Level 2 to determine this.  The point is this is something you check before you enter the trade.  

How can I improve my trading skills and knowledge over time?

Start by checking out our YouTube channel, SMB Capital.  We produce many free trading videos for the trading community on this channel.  It is an excellent resource for you to learn and grow as a trader.  

If you want to accelerate your learning curve even faster, you can  also attend our free, intensive trading workshop, where we’ll teach you the exact ins and outs (in step by step detail) of our 3 top performing trading strategies (and much more). You’ll learn the specific rules of entry and exit in far more detail than we can provide in one article. These are the exact strategies our 7 and even 8-figure a year day traders use day in and day out. Reserve your free seat here.

Mike Bellafiore is the Co-Founder of SMB Capital and SMBU, which provides trading education in stocks, options, forex and futures. Bella is the author of One Good Trade and The PlayBook. He welcomes your trading questions at mbellafiore@smbcap.com.

 

The post The Only Day Trading Guide a Beginner Will Ever Need (The Basics from A to Z) appeared first on SMB Training Blog.

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