How to Get Started as a Day Trader

Becoming a day trader can be an exciting path to embark on, yet it is one wrought with slippery slopes and hazardous conditions. The more trading knowledge a day trader has, the better the odds of success are. Some of this knowledge comes from trading experience, but in order for a beginning trader to start out on the right foot, he must have access to a wide variety of educational resources. Because of the copious trading styles out there, however, different traders will require different types of information.

Using Information Efficiently

Trying to incorporate all of the current information about a stock into a profitable trade is not always the best approach. Because there is so much information out there, often giving conflicting signals, it is much more important to be efficient and to use information that is relevant to your particular trading strategy. In other words, value the quality of information over the quantity of it. For example, if your strategy is to trade stocks that have positive earnings surprises for two weeks after the numbers come out, it is useful to obtain an earnings calendar stating when companies are to report their earnings. It might also be useful to know the recent history of earnings results and trading patterns associated with past earnings surprises for a given equity meeting this criteria. Yet while knowing the price, or book value, or the size of the float of this stock may be useful information in the long run, it may not be the most relevant information for a strategy based on brief emotional stock price fluctuations after an earnings surprise.

Day Trading vs Longer-Term Trading

In the short term, a volatile market often fluctuates based on emotion, gut feelings and counter-intuitive logic. It is for this reason that day trading and longer-term investing are two completely different animals. Earning a large enough profit every day, on a consistent basis, to be able to support yourself and your family is much different from earning a 20 or 30 percent return on a trade you’ve been cultivating for months. It is no surprise, therefore, that day traders use the most up-to-the-minute information.

The Importance of Technical Analysis

Technical analysis is an important skill for day traders to acquire because it represents the most recent information on the stock. With short windows of time to make profits in, this most recent information, in the form of stock pricing history, can often be the most relevant to day traders. Also, because of the many different types of technical measurement tools, a thorough understanding of technical analysis can help to narrow down and pinpoint the best trades. Some of the technical tools that a beginning trader should learn to interpret before starting to trade are the following: the moving averages, the relative strength indicator, the MACDs, bollinger bands, price-volume action, stochastics, and the various candlestick patterns and what they mean. The price-volume action of a stock (and the market) can be particularly important when analyzing support/resistance levels, spotting weak moves and determining the overall behavior pattern of traders.

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