My Experience Day Trading and Words of Advice
It’s hard to believe that it’s already been more than 2 years since GameStop’s short squeeze shocked the world. An unprecedented event that was fueled by the accessibility of Robinhood, a free easy-to-use platform, and the army of Redditors on r/wallstreetbets. The countless online communities that showcased astronomical percent gains and remarkable profits inevitably caught the interests of millions of teenagers and young adults — including myself.
Ever since that incident, the day trading scene blew up with hopeful individuals hoping to seize even a fraction of the tantalizing “get rich quick scheme”. While I have yet to say I am a fully successful trader, I hope that I can give those who are considering beginning their journey into day trading a guide on how to get started, and tips to progress more effectively. For any basic investment terminology or definitions for unfamiliar terms I may mention, I highly recommend Investopedia for clarification.
Learning Progression:
1. How to Find the Right Stocks:
To even begin the trading we must first find what exactly makes up a strong stock that we should trade. As a rule of thumb, we want to trade stocks that are priced on the lower end ($1-$15) that have low float, and high relative volume. Low float essentially means the share does not have that many shares, which, when coupled with high relative volume, can result in large percentage gain moves.
In order to identify the stocks that meet our criteria, you should first secure yourself a reliable scanner. A scanner is essentially a filter that scans the market to produce a list of stocks that meet the given metrics. My personal favorite is an already-made scanner by a YouTuber named Zendoo, who streams a very good day trading scanner every day, all day. However, if you want more personalization, there are also free tools such as Market Chameleon, Yahoo Finance, or Finviz.
2. Chart Reading and Indicators
Now that we have a list of stocks that meet our criteria, we need to understand when exactly to even enter a trade. Analysis of entries and exits in day trading is built upon “technical analysis”. We use chart patterns, as well as indicators and market depth to understand the market sentiment to make a profit. You may have come across these chart patterns in fact, which all use candlesticks instead of lines and create patterns with fancy names like “cup and handle”, “bull flag”, “rising wedge”, etc. On the other hand, indicators are mathematically generated visual tools to help individuals further identify trends, or changes in these trends (reversals). As there are countless chart patterns and indicators, I suggest beginners not crowd their stock charts with excessive nonsense while searching for the “holy grail” of chart patterns/indicators. I have found that having too much on your screen clouds your judgment and distracts you from understanding price movement.
Additionally, I feel that many traders lack an understanding of why exactly a stock’s price rises or falls. To summarize, if there is more demand than supply, the share price will increase as buyers are willing to pay more for the stock and sellers want to maximize profit. Similarly, if there is more supply than demand, buyers will not buy a stock until its price falls, and sellers are willing to compromise to make a profit. These rules are founded on the economic principles of supply and demand and I highly suggest you find supplementary material to truly understand this.
Key Things You Should Learn:
- Understanding the components of a single candlestick, and how it shows you price action
- Identifying zones of supply and demand
- Drawing trend lines and horizontal support/resistance lines
- Understanding of candlestick patterns, but use these only as confirmation
3. Finding the Right Broker and Paper Trading
The best way to learn of course is by doing it hands-on. I personally made the mistake of trying to study candlestick patterns by watching hundreds of YouTube videos, while I should’ve been in the market, seeing real-time data and learning from there.
There are many platforms that you can use to start trading. Robinhood has an easy-to-use, but limited platform with 0 commissions. ThinkOrSwim, Webull, and Fidelity are also free, but have a bit more complicated interfaces that likely require a quick tutorial from YouTube to get situated with.
I cannot stress how important it is paper trade/use a simulator. Not only does it get you hands-on experience in a simulated environment, but it also allows you to backtest new strategies and indicators. You will be able to see live chart patterns forming and put your analysis skills to the test in order to react to the market. I personally recommended ThinkOrSwim or Webull to get started on paper trading. ThinkOrSwim, in particular, has a function called “OnDemand”, where you can go back to any date you want and practice in a simulated environment (note that you need to have opened an account on TD Ameritrade to use OnDemand).
4. Risk Mitigation and Using Real Money
Trading psychology plays an enormous role in day trading. Even if you have the best setup and confirmation for a trade, greed, and fear often result in irrational and devastating moves. To counteract these tendencies, it is crucial to establish a clear plan of action before entering a trade, specifying exact profit-taking or exit points. While many traders like to trade with discretion and make profit targets/stop losses along the way, I advise beginners to have concrete areas to exit a trade in order to prevent large losses. In another article, I will go further into specific ways you can mitigate this risk. Remember that it's always better to “live to trade another day”.
Once you have had around a month or two of practice in the simulator, you should begin using 1 share to trade in a real account. Even though it may seem insignificant, even risking a couple of cents results in you getting a taste of the emotional battle you will face if you choose to advance down the path of day trading. I highly recommend trading with 1 or 2 shares for each position, as it provides an entirely new experience as opposed to simulated trading.
5. Joining a community and progressing further
For many beginners, you may be tempted to buy an expensive course from a “day trading guru”. There are many free videos on YouTube and useful information on public forums where you can learn and understand more about what I have talked about. If you would like all the information in one area for convenience, then a course may not be a bad idea, but in my opinion, it is better to save the money to fund your actual account.
There are many free trading communities and discord servers with experienced traders who are encouraging and learning from each other daily. I have found the most luck with Relentless Trader, Bear Bull Traders, and TradingViews’ discord servers, but there are countless other servers you can easily find on subreddits or other public forums. Joining these makes the trading path easier to navigate and I would greatly recommend them for beginners.
In a follow-up article, I may delve deeper into more advanced techniques in market depth, trading psychology, and other trading methods.
To end this article, I want to list my key takeaways from my experience which I hope will benefit you all.
1. Stay Flexible
Always be willing to learn and accept new indicators, chart patterns, or strategies. Add them to your arsenal of weapons to help you gain an edge in the market, but always remember to never rely on a single one too much. On another note, remember that you do not have to only stick with day trading, and the skill of technical analysis can be transferred to swing trading, options, and other profitable avenues. Options and swing trading, for instance, tend to be traded on a higher time frame, which many people believe takes off a lot of the stress in high-speed day trading.
2. Never Hold and Hope
Sometimes we get in on a bad trade. It happens to us all. The worst thing we can do in this situation is to hold through a downtrend, not knowing when it will end. Sure, there may be times that it goes in our favor, but it is much better to cut yourself a small loss and move on to the next trade.
3. If You Fail to Plan, Plan to Fail
Due to human behavior and psychology, our brains are wired to experience losses almost twice as hard as we experience gains (loss aversion). This results in many people tending to take profits too quickly and staying in losing trades for too long. While I will explore this idea further in another article, the bottom line is that you should never let your emotions get the better of you while trading. Always enter a trade with a plan of when to exactly get out or take profit. This will not only allow you to stay consistently profitable but will also make the path of day trading much less stressful.
4. It Always Works…Until It Doesn’t
There is no trading strategy that works 100% of the time. Even the best traders only have an accuracy of around 70–80%. In order for them to consistently stay profitable, they need to be able to abandon a losing trade, even if it was based on a historically winning strategy. Stay vigilant and always ready to cut your losses. If you play your cards right, even with some losses, you WILL come out on top.
5. Market sentiment and Irrational movement
Overall market sentiment is crucial for knowing when a day is going to be bullish or bearish. Tracking stock indexes such as the SPY and reading the news is incredibly important. News catalysts are by far the strongest drivers for high volume and can result in tremendous amounts of supply and demand, directly resulting in record-breaking moves. On the other hand, the index SPY generally demonstrates the market's overall sentiment and is a good indicator if the market is having a good or bad day. On the days that the overall market is showing signs of overall weakness, it's best to stay on the sidelines like a sniper, waiting patiently for a better trade.
6. I should’ve, could’ve, would’ve…
Hindsight is the greatest evil in trading. Fear, greed, and the fear of missing out (FOMO) oftentimes ruin the mentality of many traders, leading them to painfully wish they did this, or did that. In my opinion, the greatest risk is not taking one at all. If you truly see a great setup, you should take it, and as long as you have risk mitigation methods in play, a loss will only serve as a lesson. Occasionally, you may overlook a fantastic trade or move, but there’s no need to beat yourself up about what you “could’ve done”. Instead, focus on the trades you took, and why you did it, rather than what you “would’ve” done.
7. React, don’t predict
No one can completely predict the market. The best we can do is find trends and confirmation in hopes that it works out in our favor. In order to be a good trader, you have to be able to react. We need to learn how to quickly get out of a position, or enter one, even if the setup or trend fails us.
Disclaimer: I am not a financial analyst or adviser of any sort, and my articles are strictly for educational purposes. Stock trading is inherently risky and by reading this, you assume complete and full responsibility for the outcomes of all trading decisions, including but not limited to loss of capital. I hope to share my strategies and experience, and no individual should blindly follow without their own due diligence. Remember, if you fail to plan, plan to fail.
