Day trading is the act of buying and selling financial instruments within the same trading day. If it is done correctly, taking advantage of small price movements can be lucrative. However, it can be a dangerous game for those who are not well equipped with solid trading knowledge and a winning mindset. In this article, we will cover 3 best ways to learn day trading.
Books
Reading books written by top traders and trading educators is the most affordable way to build trading knowledge and learn from the best. Trading books are accessible, comprehensive and mostly structured around a specific topic. Whether you are a beginner learning everything about day trading from scratch, or a seasoned trader who wants to improve on trading psychology, there are well written books just for you.
Some of the best day trading books out there:
- How to Day Trade for a Living: A Beginner’s Guide to Trading Tools and Tactics, Money Management, Discipline and Trading Psychology, by Andrew Aziz. The most thorough day trading beginner’s guide I’ve ever read. Suitable for those who are looking to build a solid day trading knowledge foundation from the ground up.
- Day Trading for a Living, by Andrew Aziz. A sequel to the first book mentioned above. This book focuses more on trading strategies, setups and other more advanced topics after quickly reviewing some fundamentals. This is a natural step up to those who are looking to go deeper in trading.
- How to Day Trade: A Detailed Guide to Day Trading Strategies, Risk Management, and Trader Psychology, by Ross Cameron. Another well structured beginner’s guide written by a successful day trader and educator Ross Cameron.
- Japanese Candlestick Charting Techniques, by Steven Nison. This is the holy grail technical charting book that will help you develop knowledge and skills to read, interpret and even anticipate market movement based on candlestick charts, an essential skill for most successful high frequency stock traders.
- Trading in the Zone: Master the Market with Confidence, Discipline, and a Winning Attitude, by Mark Douglas. Trader psychology is probably the most important differentiator between winning and losing traders. This book explores various aspects of trader psychology, with the goal of identifying and developing the winning trader mindset.
- Market Wizards: Interviews with Top Traders, by Jack D. Schwager. The interviews covered in the book will help you better understand how some of the most successful traders think about trading, what their approaches are, and why they are successful.
Experience
The most effective way to learn day trading is through practice and experience. Practicing trading with real market data will help you better understand how stock trading actually feels like, and whether the trading strategy that you had in mind actually works.
Beginners should definitely start with paper trading, which is to trade the market with fake money (many day-trading friendly brokers offer free paper trading accounts, such as InteractiveBrokers). Practicing in a paper trading account is a risk-free way of getting familiarized with the trading platform, testing out various trading concepts and strategy executions.
Most day trading beginners should spend at least 1 month in a paper trading account before trading real money. It’s important to note that if you can’t make paper money paper trade, it’s very unlikely that you will be profitable when switching to a real money account.
Once you feel comfortable with your paper trading results, it’s time to start trading real money. Having real money on the line feels completely different from trading paper, it’s the ultimate test of one’s risk tolerance and psychology. You can be profitable trading paper and losing money when trading in a real account, as psychology will most likely impact decision making and execution ability.
Beginners are highly advised to start with a smaller account size when making the switch. Starting with a small account will minimize the risk of wiping out, so the fund can last long enough for you to get comfortable with risking real money, identify the trading strategy that works for you, and ultimately start making money. Many beginner day traders end their trading career short due to account wipe-out.
Trading journal is possibly the most important part of a profitable trading career. Most profitable traders document their trades. They reflect on the collected information to better understand trading behavior and thought process, and take actions to continue improving and optimizing their trades.
Which stocks were traded, what sort of trading setups were used, what were the entries and exits, why were these trades made, how was the performance, what was the feeling when making these trades, what was done well and what could be improved from these trades, these are all very valuable information to be included in a trading journal.
A trading journal can be as simple as a spreadsheet, where each column is a piece of information you want to capture, and each row is a trade (entry and exit of a specific security). There are also paid online trading journals and tools available in the market. For beginners, a spreadsheet should be sufficient for capturing and reviewing trades.
Trading Community
Beginner traders can easily feel lost when starting out, as they have no idea what challenges lay ahead, which strategies will work for them, what sort of mistakes they will make, and how to fix them. To be fair, how could they?
Trading communities are online or offline chatrooms and forums where like minded traders gather, discuss and share trading experiences, learnings and ideas. Both beginner and seasoned traders can take advantage of these communities and continue their development.
Trading community is a good place for beginners to learn from the more experienced traders, understand how others trade, learn best practices and pitfalls from others’ experiences. It’s also a good way to get additional support and potential guidance through tough times.
The more seasoned traders can also benefit from these communities for their self-development, sharing and exchanging ideas, discussing latest trends, potentially bouncing off ideas and getting input from other traders.