Things You'll Need:
- A spreadsheet for charting trades, writing diary entries and trading notes At least two online brokerage accounts A fast, reliable Internet connection
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Step 1
Write a business plan. Describe your ability as a trader to date. Compare your performance to that of key market indexes. Measure your worst draw-down, your performance relative to risk, and the diversity of your portfolio. This strict review is the same review you would ask of anyone else who would manage your money. You cannot undertake day trading if you do not hold yourself up to these minimal standards.
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Step 2
Trading begins with a good money management plan. Day traders usually trade only a few specific stocks in a day, but they trade those stocks very intensively. Traders narrow their risk with many small trades that, individually, could be absorbed even with a series of failures. A good day trader will be prepared to make many small bets in the course of a day, setting loss limits or stops at the time of execution and obeying them. Never let small losses become large losses.
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Step 3
Spend wisely on equipment. Have the ability to call a broker if your Internet or computer program crashes. Use at least two brokers so you will have more resources for research, historical data, and fundamental and technical analysis. This also gives you a backup if one brokerage firm's communication system is down.
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Step 4
Choose the type of trader you want to be and adjust as circumstances dictate. You cannot be a bull market trader in a bear market and make money. Follow the trend but have the discipline to stop trading when you believe the market may be overbought or oversold. Trade stock indexes like the S&P (SPY) when you feel strongly about market direction but don't have a particular stock to buy.
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Step 5
Always compute your overhead on a regular basis. Day trading has high variable expenses because of the large numbers of trades each day. Traders need high winning percentages to recoup expenses and do well.
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Step 6
Keep accurate records and a diary. Assess how you feel emotionally while preparing for a trade, executing the trade, and especially exiting a trade. Day traders often compare trading to farming. They cannot control the variables, but with proper techniques learned from experienced traders, books, and forums, they can cultivate large profits on a portion of the attempted trades while minimizing the risk on the portions that fail.
