The personal freedom that people can achieve today has reached a new level due to the digitization of the world of finance. After all, in these times, it no longer has to be a nice dream to earn money independently of time and place. So it is hardly surprising that, especially in the wake of the corona pandemic, more and more people want to take advantage of the promising financial opportunities that trading offers.
Trading has exploded in popularity as a pastime as casinos, and sports bars have been shut down during lockdown. However, more and more people now want to do trading not only as a hobby but also to generate a permanent sideline to increase their salary or maybe even make a living from trading in the future.
However, for this project, it is necessary to deal intensively in advance with the principles on which successful trading is based and deal intensively with the matter.
Day Trading – What Does It Mean?
People who day trade don’t make long-term investments, such as a diversified portfolio, to benefit only their retirement. Instead, day trading is speculative trading based on technical analysis and current market trends.
Day trading involves opening a position in a stock or asset – but closing it, typically, on the same day. Day trading always focuses on strategic risk management. To do this professionally, it is necessary to study charts, observe price movements and keep an eye on indicators. In this way, the market’s volatility can be used in the best possible way for your financial advantage.
As volatility increases, day trading opportunities also increase. This is particularly evident in the area of cryptocurrencies and so-called penny stocks. In principle, however, all assets can be highly volatile if corresponding circumstances arise or special news is published.
What Skills And Tools Are Needed For Trading?
Before beginners risk their money on a real mark, they should acquire some in-depth knowledge and skills in advance.
This includes, for example, being able to master the typical trading jargon and understanding technical analysis in depth. In addition, a trading strategy must be selected and ideally practiced over a more extended period using a free demo account. As soon as the relationship between profit and return on the demo account is respectable, the next step toward new additional income can be taken. However, at least 70 percent of all trades made should be profitable each month.
It also makes sense to use a charting platform. This fulfills the purpose of a screener and stock scanner. The scanner imports accurate market data into the forum, enabling timely action. The screeners also look for stocks that match the volatility that the trader is looking for. This creates a list of stocks that can be traded.
For learning the relevant trading terms, extensive free teaching material is available on the Internet today.
What Amount Should Be Invested In Trading At The Beginning?
Most popular trading apps do not charge any fees for transactions. Nevertheless, it is necessary to open a position and then close it again to realize a profit. To start trading with small fractions of penny stocks or stocks, you should have at least $100 in addition to the respective withdrawal fees.
Penny stocks trading for less than $5 a share can buy as little as 20 shares for $100. If 1,000 US dollars are invested in trading, 200 and 500 shares are already available. To realize a net profit of $100 per day, each stock below a minimum price of $2 would have to gain 20 cents if $1,000 was previously invested.
How high the profit from trading ultimately depends on the amount that the trader is willing to invest. The daily trading profit will be all the more lucrative, the higher your budget is – provided that you have practiced sufficiently in advance with the demo account mentioned above and that you have the necessary understanding of trading. Otherwise, of course, there is always the risk of a loss.
The Different Types Of Trading Accounts
In the field of day trading, there are two different types of trading accounts.
The so-called margin account offers a limited number of trades over a fixed period. Typically, for investments below $25,000, three transactions within five days. In addition, however, the margin account provides the trader with two or four times the purchasing power.
Such leverage makes it possible to buy a more significant number of shares than one’s cash reserve would allow. However, in this context, it should not be neglected that there is also a risk of suffering a more significant loss.
The cash account, on the other hand, is less risky. With this, as many trades can be executed as desired – provided that appropriate deposits are made on this. However, it would help to be careful when trading with amounts that have not yet been settled because many providers then block the account.
Experienced day traders and scalpers mostly prefer the margin account as large profits can be made from small trades. However, some limitations are associated with this account type, such as the Pattern Day Trader Rule or PTD.
The Potential Earnings Of A Day Trader
According to surveys, successful full-time day traders can earn an impressive $97,161 a year on average from their trades. A comparison with the average salary of a computer programmer, which is only around 70,000 US dollars a year, shows that this is quite respectable.
This clarifies that day trading is by no means just a lucrative sideline in the long term but can also mean complete financial independence. Of course, this always depends on how committed the trading is. Various factors can be identified in this regard, which significantly influence success and a high level of discipline.
The Different Trading Styles
There are three different trading styles within the field of day trading. Their difference lies primarily in their time component and thus also in the financial instruments used.
As part of the so-called scalping, the scalp trades only have a brief holding period. Scalpers only hold businesses for a few minutes or even seconds.
Classic day trading consists of holding the opened positions for a few hours or until the end of the day. However, if the desired goal has already been reached after a few minutes, the work can also be closed early.
On the other hand, the so-called swing traders strive for a longer trade duration. Swing trades can last for several days or even weeks.
Over time, novice traders will discover which trading style suits them best. Of course, all strategies should be tried out, at least for a certain period – of course, with the help of the demo account. Incidentally, it cannot be said that any styles that lower or higher profits could be generated with them.
These Criteria Affect Trading Success
One of the most important factors affecting how successful a trader is is their initial investment. If only 1,000 US dollars are invested at the beginning, it will, of course, take a long time before the desired lifestyle can be realized. The bare minimum for margin trading is $25,000.
The markets used for trading, such as cryptocurrencies, forex, futures, or stocks, are also decisive. The individual needs each have particular advantages and disadvantages, which the trader should deal with intensively in advance.
A certain amount of patience cannot be dispensed within the trading area either. Just because no significant success can be achieved within the first month does not necessarily mean that there is no talent for trading. In many cases, it can then help carry out further training and optimize the selected trading strategy.
The Trading – Complex But Extremely Lucrative
In summary, it can be said that trading, or day trading, in particular, is a highly complex matter. Before you can make a living entirely from trading, you need to get to know and try out numerous strategies.
Once the essential technical terms from the trading area are known, and there is a comprehensive understanding of technical analysis, the demo account should ideally be practiced intensively for several hours a day. This is the best way to train and develop your patience, discipline, and skills. At least the ratio between lost and won transactions should be 4:6 for ten trades.
If these requirements are met, trading can be an extremely lucrative activity. In the beginning, this can be used to increase the salary quickly. Still, over time many successful traders also manage to generate so much profit from trading that they no longer have to rely on their primary job.
However, not to be neglected is the fact that trading can quickly become a real addiction. According to the current study situation, young traders are particularly often affected.