How to Day Trade

Do you want to be a day trader but do not know where to start? Do you wonder what tools you will need? Do you wonder if you have what it takes to become a day trader? In this blog, we will cover the most important things you will need to know in order to become a successful day trader.

  1. ) Day Trading Funds
    In order to day trade, you need to set aside some money that you are willing to risk losing. Make sure that you are not using scared money to trade as you cannot ensure that you will make money as soon as you start trading. In fact, and saying this from experience, you will be losing money when you start out. 90% of day traders do lose money. Knowing this, don’t worry about it, because just by being here and reading this blog gets you closer to being in the category of those 10% of people who learned how to do it right. This article in particular can help you develop a plan on how to day trade the right way so you won’t be part of the 90% of those who lose their money.
    When it comes to your day trading funds, you also need to know about the Pattern Day Trader rule.

    A.) What is the PDT rule?

    The financial authorities in the US enforce laws intended to limit the amount of trading that can be done in accounts with less than 25K USD. Traders with accounts under 25K USD are allowed to make 3 trades within a period of 5 consecutive business days. A Pattern Day Trader is someone who makes 4 or more day trades within a period of 5 consecutive business days. If that happens, the PDT rule has been violated and PDT restrictions are applied to the trader’s account. Usually, brokers will restrict that account for 90 days and revoke the trader’s margin, but some will warn or block the trader from making the fourth trade.

    B.) Place of residence and the PDT rule.

    Quite a few of our members ask us if, as a non-US resident, they are subject to the PDT rule when day trading US stocks. The answer is that it depends on the brokerage you are using. If your broker is based in the USA, yes, the PDT rule applies to you regardless of your citizenship or residence. For example, if you are a Canadian and your broker is in Canada, the PDT rule doesn’t apply to you. If you are in Argentina and your broker is in the US, the PDT rule does apply to you.

    C.) So, how do you avoid Pattern Day Trader status?

    Of course, if your brokerage account has more than 25K USD in it, you won´t care about the Pattern Day Trading label, and you won’t be flagged as a Pattern Day Trader.

    If you have less than 25K USD in your brokerage account, then you will not want to make 4 or more day trades during any period of 5 consecutive business days. Do note that it does not matter whether these 5 consecutive business days fall in the same calendar week or not.

    If you day trade from an account that is not a margin account, you will need to make sure that you have sufficient cash in your account to cover a trade before you actually buy any shares, otherwise you will run into a free-riding violation. We must note though, trying to profit from small swings in the price of stock when day trading with no leverage is a very tough path to follow.

    Non-US-based brokers are not obliged to enforce the PDT rule. If you live in Canada, you can use Interactive Brokers Canada. As a Canadian company, they won’t enforce the PDT rule in your account. If you don’t live in Canada, you need to find a good offshore broker. Many BBT members (both US residents and nonresidents) with less than 25K USD in available funds use Capital Markets Elite Group (CMEG). You can find more information about CMEG in this forum post.

    For more information on the Pattern Day Trader rule, please visit the SEC website. Additional information on the PDT rule can also be found on the Interactive Brokers website

    If you believe you are already a consistently profitable day trader, but funding your brokerage account is your challenge, we encourage you to investigate the proprietary trading firm that members of the leadership team at Bear Bull Traders have founded. Please visit the peak capital website for further information. In short, you will be trading Peak Capital Trading’s money and, after one year of successful live trading, you will be able to keep for yourself up to 85% of the net profits you make.

  2. Time

    In order to day trade, you definitely need some free time. You don’t need to be available on a full-time basis, 8 hours or more, every day of the week, but you do need to set aside some time for doing your homework, watching day trading webinars, and reading some books.Do remember that the market opens at 9:30AM ET, and the most important part of your training and education is practicing. You will want to practice trading the Open as well as perhaps other times of the trading day, and all of that practicing is done in your simulator. If you can’t trade the Open because the timing interferes with your employment, then you can use the replay feature that DAS Trader offers. This way, whenever it is most convenient for you, you can practice trading the Open using the replay feature.

  3. Trading Tools

    Similar to any profession, in order to become a day trader you will need to purchase some tools, ranging from your trading station to your execution platform.A.) Trading station setup. You do not really need the fanciest last generation PC with 10 monitors. A decent setup which can run your execution platform with one monitor will be sufficient for starting out. Note that DAS Trader Pro works only on Windows. Once you see improvement in your trading and you feel the need to acquire more monitors and upgrade your trading station, you can learn about how to best go about doing it here.

    B.) A Brokerage Account.

    In order to day trade, you must open a brokerage account. We set out some information regarding selecting a broker earlier in this blog, and you can also learn more about the process here.

    C.) Scanners

    When day trading, you do not randomly pick stocks, each day you must trade the Stocks in Play. Scanners help us find the Stocks in Play. You can learn more about the Trade Ideas scanner here.

    D.) Platform

    An electronic online trading platform is a computer software program that is used to place orders for day trading. The trading platform is different from the brokers themselves. However, we see often that traders confuse these two as one. The trading platform sends and places your order at the Exchange so your broker can clear the order for you. Usually, brokers offer their own proprietary trading platform to their clients. The quality, charting capability, speed of the software, and many other features regarding the software, varies significantly, which also of course affects their pricing. Many brokers offer their platform for a monthly fee, but they may waive that fee if you make sufficient commissions for the broker. We recommend DAS Trader Pro, which you can learn more about here.