Ultimate Stock Market Day Trading For Beginners Guide

Ultimate Stock Market Day Trading For Beginners Guide

If you have ever been involved with the stock market, you’ve probably heard the term “day trading” before. 

Day trading is one of the most popular trading strategies practiced on the stock, options, futures, currency, and crypto markets and involves buying financial instruments and selling them not long after the time of purchase. 

While the timeframes for each trade may vary, the principal definition of day trading requires for the bought instruments to be sold before the current session closes, or before the day ends. 

Day trading is especially popular among professional traders, who often have access to a large pool of capital so they can pick and choose their trades depending on current market conditions. 

While anyone can practice day trading in theory, in practice there are a few hurdles that may bar inexperienced traders from starting day trading. 

In some cases, such as stock trading, there are capital requirements to be admitted as a “pattern day-trader”, which usually implies that the trader knows what they are doing and assumes all risk responsibly. 

If you are a beginner trader and would like to delve deeper into the world of day trading, this Investfox guide is the one for you. 

Introduction To Day Trading

As someone who is new to day trading, it is important to get a clear picture of what day trading is, how it works, and what benefits and risks are involved in the process. 

What Is Day Trading?

Day trading refers to an approach to trading that involves buying and selling financial securities within the same day, or often within a matter of seconds/minutes. 

Day traders typically focus on smaller margins and higher volumes, which can add up to substantial gains over the long term. However, it must be noted that day trading can be very risky, as the markets are volatile and prices constantly shift. 

Day trading has become especially popular ever since the advent of the internet and online trading has taken over the markets. 

Due to razor-thin margins and short timeframes, day traders have to rely on a wide variety of technical indicators to anticipate market movements and make profitable trades, which is easier said than done in an especially volatile market. 

Institutions often employ a diverse group of day traders and give them specific instructions about what to trade, how to structure their trades and how to size their positions. 

In some cases, day traders have complete autonomy over their trading decisions, so long as they meet their performance expectations. 

Is Day Trading Right For Beginners?

Although day trading is typically not advised for complete beginners in the stock market, you can still learn a lot by familiarizing yourself with the basic concepts of day trading, which can help you better understand the inner workings of the stock market, so you can construct consistently profitable trading strategies on your own. 

Before you start day trading, it is crucial to nail down the basics of the stock market - what it is, how it works, and get to grips with why so many people choose to invest in it. 

Once you’ve become familiar with these basic concepts, you can start experimenting by opening a brokerage account and using their paper trading account, often called a demo account, which works with simulated funds and does not put your real capital at risk. 

In general, it is best to stay away from day trading as a complete beginner, but once you’ve accumulated some experience and knowledge of the markets, setting some of your capital aside to practice day trading could prove to be a highly rewarding experience. 

Getting Started With Stock Market day trading

While buying and selling stocks is a fairly straightforward process that is easy to follow, day trading introduces a degree of risk and fast decision making that regular stock trading does not require. 

For example, buying AAPL stocks to sell them a couple of months later at a higher price is a very basic and reasonable investment to make. 

On the other hand, day trading AAPL stocks involves timing the market perfectly, while dealing with a lot of sudden shifts in price. This is especially true for AAPL stock, as it is extremely liquid and attracts a lot of “smart money” from a wide range of financial institutions who typically trade in very large quantities. 

How Stock day trading Works

Once you’ve set up your trading account and accumulated some experience, you can switch your strategy to day trading, which is far easier than it may first seem. 

Switching from basic stock trading and investing to day trading does not involve any additional registrations or a shift in your account - it simply means that you will be buying and selling stocks at much smaller intervals and will be avoiding holding any stocks going into the next day’s trading session. 

As you may already know, the stock market is only open during workdays (assuming there are no stock market holidays). Therefore, you can buy and sell a stock on Monday and sell it on the same day: Congratulations! You are now a day-trader. 

However, there is one crucial rule for U.S. day traders that sets them apart from regular stock traders, which is the “pattern day-trader” rule, which we will cover shortly. 

Things To Look Out For

As a day-trader, you will have to grapple with an ever-changing stock market, which amplifies the importance of awareness and quick thinking. 

When choosing a stock, there are three core components you should never ignore, which are:

  • Volatility - volatility is the name of the game when it comes to trading. It is the core component of what makes prices move and trading possible in the first place. The more volatile a stock is - the higher the potential for profits (as well as losses)
  • Volume - this refers to the cumulative number of buy and sell orders on a given stock and gives you a good understanding of how much interest a particular stock attracts from market participants. A stock with a high trading volume is preferable, as it is more liquid, thus, easier to buy and sell 
  • Liquidity - a security that is liquid is easier to buy and sell at a moment’s notice. The tighter the spread between the bid and ask prices, the more liquid the stock. day trading with illiquid stocks can become hectic fairly quickly, especially when you’re trading in high volumes and there are not enough sell orders to match your buy orders and vice versa

Pattern day trading

As we have previously mentioned, the pattern-day trading rule applies to all day traders and limits the number of participants who can engage in pattern day trading. 

Pattern day trading refers to day trading activity that is continuous throughout at least 4 out of the 5 possible stock market days in a week. 

For instance, if you day-traded every day except on Fridays, you would be qualified as a pattern day-trader and you would be required to have at least $25,000 in your account to continue day trading. Once the value of your account dips below this threshold, your broker will notify you that you will not be able to continue pattern day trading unless your account is brought back up to $25,000. 

This rule is strictly enforced and your broker is obligated to automatically detect pattern day trading activity on your account. 

However, it must be noted that day trading on 3 working days out of 5 will result in the pattern day-trader status, as well as the $25,000 restriction on your account to be lifted by your broker. 

Essential Tools And Resources

Day traders do not only rely on their instincts to make profitable trades. There are a wide variety of tools and techniques available to help them make quick decisions that are based on sound technical knowledge and time-tested strategies. 

Institutional day traders often have access to state of the art software and complex technical indicators to help them sort through the clutter and identify profitable opportunities as they unfold. 

Choosing The Right Brokerage

As a beginner day trader, choosing the right brokerage and setting up your stock trading account is the first step to ensuring a comfortable trading experience. Day trading can be a stressful ordeal and nobody wants an inadequate piece of software making things harder for them. 

This is why it is essential to choose a time-tested brokerage with high quality software and responsive support so you can easily reach out to them in case of any issues on their end. 

Another key consideration is cost. A brokerage with zero trading fees is ideal for day trading. On the other hand, a brokerage with slightly above-average fees can quickly start eating into your profits as you execute multiple trades a day. 

Your brokerage account is the primary source of trading software you will be using while trading stocks, therefore, it is in your best interest to pick the one that has a proven track record and a high quality service. 

Market Data And Charts

Another key resource you will need as a day-trader is market data. Knowing what is happening on the market is incredibly important, as you cannot track everything all at once, having a brief overview of some key market developments can go a long way. 

Data points, such as economic and general policy news can help you anticipate the movements of some larger players. By identifying their preferred investments, you can follow the “smart money” trail and trade stocks with an increased volume - increasing liquidity and your chances of success. 

Customizable stock price charts are some of the most useful tools in a day trader’s arsenal. The ability to quickly shift between timeframes and add a host of technical indicators to the chart gives traders the ability to quickly find what they are looking for and decide whether a particular stock is worth trading or not. 

Other Helpful Trading Tools

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While trading software and charting tools are essential for any day-trader, there are also a number of other helpful pieces of software that can assist in different ways. 

For example, a financial calendar can help day traders anticipate important events in a company’s schedule, such as an earnings call, which can trigger a buying or selling spree on the stock, increasing volatility and setting the stage for some lucrative day trading. 

Stock screeners and trading journals are also very helpful in organizing and recording your trades to learn from past mistakes or to tweak your strategy based on past performances. 

Additional educational materials can also be fruitful for beginners to quickly fill in the gaps in their knowledge of the markets. 

Building The Foundation

Complete beginners may find the intricacies of day trading somewhat difficult to follow, which is why it is crucial to have a clear understanding of what to expect from the stock market and how to formulate a strategy that makes sense for your financial objectives. 

Getting To Know Stock Market Fundamentals

It goes without saying that no day trader can be successful without a good knowledge of stock market fundamentals. This involves understanding the general concepts regarding stocks, as well as some basic strategies and key dates to look out for. 

Here are a few stock market fundamentals everyone interested in day trading should know:

  • Market capitalization - the number of shares multiplied by the price of a single share. A higher market capitalization typically also implies that the stock is highly liquid and easy to trade
  • Reversal, consolidation, and continuation - market trends can go in the opposite direction, move within the same range for a while, or continue moving in the period direction 
  • Risk and return - every trade carries a degree of risk and possible returns. Being familiar with the possible risks and returns of a stock can help you decide whether it is the right pick for you 
  • Beta coefficient - the beta coefficient measures a stock’s relativity with regard to the market. A beta can be positive or negative and a beta of 0 means that the stock follows the market perfectly. The S&P 500 index is used as the benchmark for beta calculations 
  • Trading volume - the number of shares trading hands over the trading session. This includes all buy and sell orders 
  • EPS - earnings per share, or EPS for short, represents the company’s earnings per a single share of its stock 
  • PE ratio - the PE, or price-to-earnings ratio measures the ratio of a stock’s price to the earnings per share of the issuing company
  • Spread - the difference between the bid and ask prices. The tighter the spread, the more liquid a stock is, which makes it easier for day traders to buy and sell it

Technical VS Fundamental Analysis

There are two distinct approaches when it comes to analyzing a stock - technical and fundamental. 

While these two methods are often used in tandem by most traders, there are core differences between them, as well as the scenarios when they can be used to their full advantage. 

  • Technical analysis involves studying historical price data, volume, and other market indicators to predict future price movements. It is based on the belief that past price movements can provide insights into potential future trends. Technical analysis uses a wide range of indicators and oscillators, such as the Relative Strength Index (RSI), stochastic oscillators, the Moving Average Convergence Divergence (MACD), etc. Technical analysis is often used in short-term trading and is especially useful in day trading
  • Fundamental analysis is more concerned with broader market forces and the performance of the issuing company of the stock, such as financial and governance performance, macroeconomic conditions, valuations, dividend data, etc. Fundamental analysis is typically used by long-term investors

It is important to note that neither of the methods of analysis exist in isolation and a combination of the two typically gives traders a much better idea of what is happening on the market. 

Developing Your day trading Strategy

Developing a day trading strategy can be the hardest part of the job which requires careful balancing and frequent reiterations to achieve the desired results. 

While theoretical knowledge of the markets, as well as a good sense of timing your trades, are crucial skills to have, developing your day trading strategy will inevitably include a lot of trial and error and this should not discourage you from trying to hone your skills and improve your strategy one trade at a time. 

Choose Your Trading Style

Once you’ve finally set your sight on a shortlist of stocks you would like to day-trade, it is vital to decide what approach you are willing to take, which depends greatly on your risk tolerance, level of proficiency, and to some extent, the amount of capital at your disposal. 

In general, there are a few different styles of day trading you can choose from, such as:

  • Scalping - scalpers make numerous trades throughout the day, holding positions for very short periods, often just seconds to minutes. The goal of scalping is to generate incremental profits that add up after a full day of trading 
  • Momentum trading - momentum traders look for stocks with strong movements in either direction with high volume. They join the trend and attempt to make quick profits and exit while the momentum is still there
  • Reversal trading - reversal traders focus on identifying points where a stock's price trend is likely to change direction. They look for overbought or oversold conditions and seek to profit from an anticipated reversal of the trend
  • Breakout trading - breakout traders look for stocks that are reading within a range and anticipate a breakout from that trend. They attempt to profit by anticipating the direction of the breakout 
  • Range trading - range traders focus on stocks that are trading within a well-defined range between support and resistance levels. They buy near the support level and sell near the resistance level, aiming to profit from price movements within that range
  • News-based trading - news-based traders wait for significant market developments surrounding the stock of their choice, such as an earnings release, which can either push the price up or down
  • Arbitrage - arbitrage traders exploit price discrepancies between different markets or securities. They simultaneously buy and sell the same stock on different exchanges or in different forms (like stock and options) to profit from price differentials between platforms
  • Pattern trading - pattern traders follow well-defined market trends and try to measure them using chart patterns and technical indicators to anticipate the direction of the market 
  • Algorithmic trading - algorithmic traders use complex algorithms and trading bots that give instructions in the form of code, which the bot uses to execute trades when the specified conditions are met 
  • High-frequency trading (HFT) - HFT is one of the most expensive types of day trading, as it involves the use of state-of-the-art technology to make thousands of trades during a single trading session. Many HFT firms are located in physical proximity to the stock exchange to limit latency to a minimum 

Entry And Exit Strategies

Timing the market can be very difficult for day traders, which is why it is so important to have clear entry and exit strategies when making trades. 

There are a few ways you can structure your entries and exits, which depend on your overall trading strategy.

For example, momentum traders may enter when they see a spike in momentum, hoping to ride the wave and exit once the momentum starts to slightly dip. On the other hand, some traders may target breakouts as their point of entry and make trades when the trend is contained within a small range. 

Entry and exit strategies are tied to the concept of risk management, which we will discuss further in the next section. 

Risk Management

Considering the inherent risks associated with day trading, the importance of proper risk management cannot be understated. 

Day traders can use a number of methods to cut their losses when a trade isn’t going in their favor, or to simply limit the potential downside of their existing positions. 

While it is true that day traders do not hold open positions for extended periods, this also heightens the risk of costly mistakes and increases the need for safety precautions. 

Stop-Loss And Take-Profit Levels

Stop-loss and take-profit orders are some of the most versatile tools at day traders’ disposal. They are integral components of day trading risk management and help traders control potential losses and lock in profits. 

  • A stop-loss order comes with a predetermined price level at which traders will exit a position to limit losses. By setting a stop-loss, traders set the maximum amount they are willing to lose on a given trade. Stop-losses also help traders avoid costly mistakes by placing a safety net at the desired price level
  • A take-profit order comes with a predetermined price level at which traders will exit a position to lock in profits. While take-profits may limit the potential upside of a trade, they also shield traders from overextending and holding the position for longer than necessary 

Both of these orders seek to contain trades within reasonable bounds to avoid traders spending too long on single positions. They are especially handy for day traders, who wish to move on to the next trade as soon as possible. 

Managing Position Sizes

Choosing the size and dollar value of your positions can help you stay within your means and not overextend when trading stock with lower liquidity. 

The process of managing position sizes can be broken down into the following steps:

  • Determine your risk tolerance - your risk tolerance is a percentage of your total capital you are willing to commit to a single trade. Generally, it is reasonable to stay within a 1-2% range
  • Calculate position size - use your risk tolerance percentage to determine the optimal position size. Position Size = (Risk Tolerance % * Trading Capital) / (Entry Price - Stop-Loss Price)
  • Set dollar amounts - depending on your available capital, determine the dollar amount you are willing to risk on a single trade 
  • Adjust for price and volatility - stocks with a higher price per share may need larger positions in terms of dollar value to reach the same dollar risk as cheaper stocks 
  • Avoid overconcentration - putting too much of your capital into a single position can amplify your losses if the trade does not pan out as originally planned
  • Review and adjust - regularly review your trading performance and make adjustments where necessary 

If you follow these simple rules, you can avoid the hassle of overextending on a trade and having to prolong an open position in hopes of a rebound. 

The Importance Of Practice

Beginner traders need a lot of practice to hone their skills. However, doing so with real capital involves a high degree of risk, which is why most brokerages and third parties offer demo trading accounts and simulators where traders have access to the markets with simulated capital to test out their strategies and see what works for them. 

Demo Accounts

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Demo accounts are provided by online brokerages and give traders simulated capital (typically $100,000) and allow them to make trades and see where their strategies might need adjustments. 

Some demo accounts may impose restrictions on concentration to teach traders about the importance of diversification. 

These demo accounts, also known as paper trading accounts, give traders access to the broker’s actual trading platform, which is another great way for traders to warm up and familiarize themselves with the software. 

Paper trading accounts are common tools offered free of charge and it is always advisable for beginners to take full advantage of this opportunity to learn before putting real capital at risk. 

Trading Simulators


Different from demo accounts, trading simulators are typically third-party programs that offer a similar service to traders, with some additional perks and features included. 

Some simulators are not free and come with a diverse package of auxiliary software, while others are free and concentrated on the basics of order placement and execution. 

Most trading simulators have access to real-time market data to make traders feel like they are actually participating in the global market. 

Many simulators have gamification features to introduce a degree of competitiveness among users. 

Advanced Trading Techniques

Professional day traders use a wide variety of advanced technical tools to get ahead on the market, such as advanced chart patterns, level II price quotes, retracements, extensions, etc. 

While beginners might find a hard time with some of the advanced day trading tools, it is nonetheless beneficial to understand their basic applications and potential benefits in the future. 

Advanced Chart Patterns And Technical Indicators


Day traders typically use candlestick chart patterns, which show the opening and closing prices, as well as the highs and lows during a set period of time. 

Candlestick charts are versatile technical tools that go well with a number of different indicators, such as:

  • Moving averages (MA-s) - Moving averages smooth out price data and help identify the underlying trend. Traders often use simple moving averages (SMA) or exponential moving averages (EMA) to confirm trends shown by candlestick patterns
  • The Relative Strength Index (RSI) - The RSI measures the speed and change of price movements and helps traders identify overbought and oversold conditions to take advantage of
  • The Moving Average Convergence Divergence (MACD) - MACD is a trend-following momentum indicator that shows the relationship between two moving averages of a security's price. Traders look for crossovers and divergences to identify potential buying and selling opportunities 
  • Bollinger Bands - A middle moving average and two outer bands that are standard deviations from the middle band. Bollinger Bands help identify potential price breakouts and reversals
  • Stochastic Oscillator - The stochastic oscillator compares a security's closing price to its price range over a specified period. Traders use it to identify potential reversals when the indicator moves into overbought or oversold territories
  • Average True Range (ATR) - ATR measures market volatility by analyzing the range between high and low prices over a specific period. Traders use this to set stop-loss levels and assess potential price targets

These are only a handful of indicators commonly used on candlestick charts to measure factors, such as volatility, momentum, and trend strength. 

The Psychology Of Day Trading

Day trading can be a highly stressful process and the mental aspect of trading can sometimes be even more important than the technical aspects of a strategy. 

This is especially true when a trade starts losing money, at which point many traders may panic and try to double down on the stock to recuperate their losses, which is never an advisable course of action. 

Most successful traders have stated that a certain degree of emotional coolness and mental fortitude is required for any trader to be successful, as there will inevitably be times when the trader doubts their skills and knowledge of the market entirely. 

Keeping a cool head and showing a pragmatic approach are essential to a profitable trading career and beginners should be ready for a lot of trial and error until they consistently achieve desired results. 

Handling The Pressure

The fast-paced environment day traders have to deal with on a regular basis can be mentally tasking. Decisions have to be made in a matter of seconds and a number of consecutive unsuccessful trades can have a major impact on the confidence of traders. 

This is why it is crucial to cut your losses as quickly as possible and not view unsuccessful trades as major failures. Rather, they are lessons that teach you where your strategy needs work and how to make the necessary adjustments to improve your performance. 

Stress is one of the key reasons why some experienced day traders consider that not everyone is cut out for full-time day trading.

The key to overcoming these mental hurdles is to remain calm and collected and maintain discipline even when most of your trades are not panning out well. 

Discipline And Organization

Being disciplined and organized is key to a successful day trading career. Day traders have to interact with a lot of data and often trade with multiple screens providing vital information. 

Finding the motivation to trade every day can be a bit tough, but visualizing your goals and setting paths can go a long way in providing you with some structure. 

Being organized and keeping track of a barrage of data can be easier said than done, but it is crucial to have some structure when it comes to your daily trades. 

There are a variety of financial software that can help you stay organized and remove some of the clutter, as too much data can be a nuisance, rather than a help. 

Keeping a trading journal and tracking your performance is also a great way to continuously improve your stock picks and subsequent performance, as day trading is a constant learning process - even for seasoned professionals. 

Tax Implications Of Day Trading

Much like regular trading, day trading is subject to taxation in most jurisdictions. Focusing on the United States, these are some important factors to consider when day trading to keep track of your taxes and avoid overpaying wherever possible:

  • While trading is subject to capital gains tax, day traders pay short-term capital gains tax, which is the same as the ordinary income tax rate. Depending on your income bracket, you may have to pay 10%, 12%, 22%, 24%, 32%, 35%, or 37% on your trading income 
  • Wash sale rule - The wash sale rule prevents you from claiming a loss on the sale of a security if you buy a substantially identical security within 30 days before or after the sale. This rule is designed to prevent traders from taking advantage of tax losses while maintaining the same position
  • Tax reporting - You'll receive Form 1099-B from your broker, which provides details of your trading activity. This form includes information about the proceeds from your sales of securities, which you'll need to report on your tax return
  • Tax deductions - Traders who qualify for trader tax status may be able to deduct trading-related expenses, such as trading platform fees, data subscriptions, and home office expenses
  • Self-employment taxes - If your trading activity is substantial and consistent, you might be considered self-employed. However, the measures of this are somewhat fluid and the IRS must decide whether to grant you a trader tax status or not 

Pros And Cons Of Day Trading

To summarize, let’s review some key advantages and disadvantages of day trading to help determine whether this is the right course of action for your financial objectives. 


  • Potential for quick profits - a successful day trading career can quickly give you substantial profits, as you will be trading on very short timeframes 
  • Active involvement in the market - day trading can be intellectually stimulating and engaging, as traders constantly monitor markets, analyze charts, and make quick decisions
  • Flexible schedule - if you day-trade for a living, you are your own boss and have full autonomy over how to manage your time and trades 
  • Liquidity - most stocks are generally highly liquid, meaning they can be bought and sold quickly without significantly affecting their prices
  • Tax benefits - depending on the jurisdiction you are in, day traders can be subject to various tax benefits and write-offs, which lessen the overall tax burden for the year


  • High-risk - day trading is a fast-paced, highly risky process, which can lead to substantial losses
  • High costs - trading in high volumes can lead to higher commissions and other trading fees, which can eat into your profits 
  • Stress - day trading can be highly stressful, especially when trades are not going to plan
  • Knowledge and skill requirements - day trading requires a solid understanding of the market, which takes time and experience 
  • Pattern day trading rule - if you wish to day-trade on every workday, the PDT rule demands that you have at least $25,000 on your trading account

Key Takeaways From The Ultimate Stock Market Day Trading For Beginners Guide

  • Day trading is the process of buying and selling securities within the same trading session. Most day traders make hundreds or even thousands of trades per session
  • Day trading stocks is a highly skillful and stressful strategy, which uses a number of technical indicators and financial tools to quickly analyze data and help traders make rapid decisions
  • Discipline and mental fortitude are essential for a successful day trading career
  • Technical indicators, such as the RSI, MACD, moving averages, oscillators, etc. can help traders identify potentially profitable opportunities in the market 
  • Risk management is essential for any serious day trader to reduce potential losses and lock in profits 
  • The Pattern Day Trader Rule requires traders to have at least $25,000 on their accounts if they trade during 4 out of 5 workdays 
  • Traders who are organized and have realistic performance expectations can find day trading to be a lucrative and highly rewarding career 

FAQs On Stock Market Day Trading

Is day trading stocks risky?

Stock day trading can be risky, as day trading involves buying and selling in short intervals when the market is highly volatile and even a small mistake can lead to losses. 

Can you make money by day trading stocks?

Yes. Successful stock day traders can make substantial amounts of profit while benefiting from tax deductions if they qualify for a day-trader status

Can anyone day-trade stocks?

Day trading stocks requires a deep knowledge of the stock market and experience in trading. While anyone can theoretically start day trading, successful traders need to be trained, organized, and realistic in their expectations.