First Steps to Become a Professional Day Trader

So, you finally decided that you are going to spend your time becoming a day trader and earn money from short-term movements in the capital markets. Before you take the plunge, there are a few steps to take to make sure you are ready for this new endeavor. Remember, day trading is a business, and like every other business, you need to be prepared. You need to understand your costs and the revenues you can produce. You will need a reliable partner, who will broker and clear your trades. Prior to getting started you need to set up your day trading tools, such as software, and news flow. Lastly, you have to know the strategies you plan on employing and make sure you are comfortable using these strategies once you start risking real capital.

First, What is Day Trading?

Day trading is an investing method where you generally close your open positions before the end of a trading session. Most day traders want to avoid holding positions overnight and eliminate the risk of having a market moving unfavorably against you when the market reopens the next day. For many markets, such as forex, there is round the clock liquidity, but for some CFDs, there is no liquidity when a market is closed.

Determine your Trading Personality

Your trading personality describes how comfortable you are with different trading techniques. For example, are you comfortable buying the dip and selling the rally? Is your style is one that appreciates momentum such as buying while a trend is moving higher and sell as the market is moving lower. Discovering your trading personality will help you decide on which trading strategies are right for you.

If your strategy is a discretionary strategy, find one that fits your trading personality. If you are breakout trader and like to catch a trend, avoid using mean reversion strategies where you buy on dips and sell on rallies. You don’t want to stop out just because the market moves against you. You should pick a strategy that fits your comfort zone, as this will allow you to stick with trades more easily.

You also need to decide if you want to trade a discretionary strategy or a systematic strategy.  A systematic strategy focuses on backtesting specific technical indicators to see if they have worked using historical data. You can test the strategy using a demonstration account before you risk real capital. A discretionary strategy is one where you use trading tools and then make a decision of whether you should pull the trigger or hold off.

Find a Reliable Broker

Some of your success as a day trader will depend on your broker who facilitates the trading process. There are several nuances that will make the difference especially if your trading strategy is based on many transactions where the gains are slim. If you are trading contracts for differences (CFDs), you want to find a broker that provides a robust trading platform offering many types of graphs, along with a wide variety of products to trade. If you are trading forex, a broker that offers an ECN, will provide you with robust spreads, and elevated margin levels. For example, Alpari offers 75-difference products, with ECN trading on forex, and narrow spreads as low as zero-spread. The maximum leverage Alpari offers is 1000-1. This means for every $1 you post as equity, Alpari will lend you $1,000 to trade.

Set up your Day Trading Tools

A broker with a robust platform can be the difference in your overall success. The staple in the industry is Meta trader and broker’s like Alpari offer MT4 and MT5. Meta trader offers some of the best graphing and charting software available. In addition to state of the art technical analysis tools, MT4 and MT5 have expert advisors that allow you to backtest your trading strategy to see if it has worked using historical data.

To find a reliable broker its important to look at online reviews. There is an organization that offers reviews on forex brokers, and it’s recommended that you read several to attempt to get an objective view. The most imports issue you should focus on is fraud or issues related to the integrity of the broker. If there are red flags, you should consider passing. Also look for how long it takes to set up an account, deposit and especially withdraw your funds. If there are complains about the number of days or specific parameters surrounding withdrawals, pay attention to these issues.

A common complaint focuses on transacting during busy periods and when the market is moving rapidly. If you are trading a strategy that needs lightning quick execution during high volume periods, make sure there are few complaints about this issue. Lastly, you need to know your costs. Each broker will charge a specific price for commissions and potentially deposits and withdrawals. When you figure out your trading business plan, you need to incorporate these costs into your model.

Know Your Strategy

Before you risk real capital it’s important to completely understand your strategy. First, know when there is liquidity, and the hours of the product you are trading. Second, understand the costs associated with your strategy. If your commissions and slippage are 10 pips and you are trying to make 10-pips for trade, you are destined to produce a failing strategy. Make sure your broker has all the technical tools you need to track your strategy. Regardless, learning how to day trade is learning through movement. Set up all the necessary tools before start trading and remain tentative to learn in every transaction you make. And although a losing transaction can be a painful moment, it is a valuable lesson.

Summary

Day trading is a business and it’s important to understand all of the nuances of this business before risking real capital. Prior to risking you’re hard in cash, set up a checklist including finding a reliable broker, evaluating you’re trading tools and knowing your strategy before pulling the trigger. Carefully measure the costs of doing business to see if the risks you are willing to accept justify the rewards you seek. Additionally, you should determine your trading personality before you jump into a strategy that does not fit your risk tolerance and comfort level.