While day trading can be a great way to make some extra cash or even earn a living, it’s not something you can simply jump into. Without the proper practice and groundwork, it can be tough to get your initial efforts off the ground.

Here are five steps you need to make sure you start your trading journey in the right way.

Identify your market

There are different markets available for day trading, but they can often have very different requirements and characteristics. Choose the market you want to focus on early in your exploration so that you don’t spread your time and energy too thinly over multiple markets.

While no one market is better than another, making the decision about which one you want to trade in, comes down to two things – what you want to trade and what you can afford (your capital requirements).

There are other up-and-coming markets to trade on, such as cryptocurrencies, and these are often far more flexible when it comes to capital requirements.

Create your strategy

Once you’ve chosen your market, your next step will be to establish a strategy for trading. Adopting a singular strategy that works well is much better than having multiple strategies that are less reliable, so you could trial and test one strategy to use across the board to make sure it works.

Start creating your strategy by watching live charts of an asset move. While examining these, consider how you would enter this trade, how you would get out – whether you win or lose, how much you would risk on the trade, what size position you would take, and what the odds are that the trade would be profitable. Once you’ve considered all of this, ask yourself what tendencies the strategy shows after 100 times taking the trade.

There are different trading strategies to consider, from swing trading and scalping, to trading on volume and arbitrage trading, but it can be much easier to learn a trading strategy from someone else. At Trading College, our courses and mentor coaching programmes can give you the tools you need to either create or learn a strategy that will support your day trading goals.

Decide your trading hours

Once you have established your strategy and before you can put it into practice, there are a couple of other decisions that need to be made. The first one to consider is at what times you will be trading during the course of the day.

Some day traders will choose to trade for a whole session, whether that’s 9:30am to 4pm EST for the US stock market or 6am to 5pm GMT for the Forex market, but it can be effective to choose a few hours to focus on so that you can build up consistency.

If you’re considering entering the stock market as a day trader, the best time for trading is the first one to two hours after it opens, and the last hour before it closes. This means that you’d want to get good at trading between 9:30am and 11:30am EST (1:30pm to 3:30pm GMT), since this is the most volatile time of day. During this time, the biggest price moves are occurring and there is the most potential for profit.

For the futures market, similarly to stocks, a good time to start day trading is when the market opens for the day. However, since active futures often see trading around the clock, the main trading day starts earlier than the stock market. For this reason, focus on 8:30am to 11am EST (12:30pm to 3pm GMT) instead of the later stock times.

The Forex market, as we mentioned before, is most volatile between the hours of 6am to 5pm GMT. However, since FX trades 24-hours a day during the week, it would be hard to focus on all the time it’s running. The biggest price moves typically occur between 12pm and 3pm, so this is normally the time than most traders are active.

Manage your risk

There are two kinds of risks involved with day trading: trade risk and daily risk. These will both affect your strategy, but also have different connotations for how you trade.

How much are you willing to risk on each trade? This is known as trade risk. To minimise your losses during a day of trading, especially during your first few months when you’re getting the hang of it, it’s important to set your risk levels before you start trading. It is often advised that you   risk no more than 1% of your capital on each trade. To do this, pick an entry point and then set a stop loss, which will get you out of a trade situation if it starts going against you  .

Don’t let a single day ruin your week or month, by making sure to manage your daily risk.  By setting a daily loss limit, you can make sure you don’t lose your capital just because of one bad trade. Setting a daily loss limit, such as 3% of your capital, means that you would need to lose three trades or more, with no wins to lose 3% (if you’ve set up a trade risk of 1%).

However, we would like to mention that it’s best not to trade on margin in general until you’re confident with day trading overall.

Practice makes perfect

It’s important not to jump into day trading until your strategy is well and truly airtight and you’re able to adapt to trades and the market changes.

To do this, use a demo account before you risk real money. A demo account will provide you with historical trading market performances that you can trade against, honing your strategy and methodically working out all the kinks. While a demo account can’t quite mimic the pressures of having real money on the line, it can help you develop your trading confidence, get you into the mindset of monitoring market conditions, familiarising yourself with trading software, and making sure your strategies are performing at their best.

When you’re practicing, although it may be tempting to try new things and change your strategy or move to a different market, it’s important that you stay focused on your single strategy, make sure you only trade during the hours you decided to trade, and keep in the market you picked so that you can build consistency and reliability.

Learn to Trade Live – Free Course Only in September

If you’re looking to start day trading, why not come along to one of our Learn to Trade live courses and take your first steps to successful, profitable trading today! And for September ONLY, come to our Learn to Trade Live course for free! *

*You will pay a £50 refundable deposit to secure your space for the course on the Saturday 15th September, which will be refunded on Monday 17th September.