How day trading works? A day trade occurs when you buy and sell (or sell and buy) the same security in a margin account on the same day. Times are rapidly changing, what was once left to large financial institutions and brokerages is being done from the convenience of people’s homes or anywhere, they have internet access. Many have decided to dive in and learn how day trading works. Individuals from all backgrounds enter the stock market daily to make the most of the daily price swings in stock prices. Research has shown that the global stock market is currently worth around $117 trillion. More than $49 trillion comes from US stock markets, representing the world’s largest number of day traders.
The easy-to-use trading apps and 0% commission of services like Robinhood, TD Ameritrade, and Charles Schwab have truly made it effortless to attempt to trade like professional traders. Day trading can turn into a lucrative career as long as you have a strategy and plan in place. This is because day trading requires a lot of self-discipline and detachment from emotions. There is a lot to take in with day trading that if you don’t get a handle on can consume you. You need the right mentor to help you stay grounded and keep you from getting sucked in.
How Day Trading Works: Day Trading Basics
Day trading is the activity of buying and selling stocks, bonds, options, futures, or commodities with the intent of profiting from price movements in the underlying security within a single trading day. Day traders rely on analyzing the movement of stocks on a chart rather than factors like products, industry, and management. The knowledge aids in knowing when to enter or exit the stock market. It also shows trends, which is helpful because previous days’ trends tend to repeat themselves. The main objective of a day trader is to take advantage of small price movements in highly liquid stocks. The more market volatility, the more favorable the conditions for a day trader.
Calls and Puts
A call option gives you the right, not the obligation; to buy a stock, and a put option gives you the right to sell the stock. If you believe the market is trending upwards, you would purchase a call option. If you felt the market was trending downwards, you would purchase, and put contracts. You would then sell your contracts to either follow your strategy or minimize a loss. Trading options are best to think of it as the probabilities of future price movement. Day traders buy and sell shares of stocks within the same day.
If you are the writer (seller) you have a different risk than if you are the holder (buyer). If you are a call holder and buy a call option, the upside potential is unlimited, and the downside potential is the premium that you spent. You want the price to go up a lot so that you can buy it at a lower price. If you are a put holder and buy a put, the upside potential is the difference between the share prices. You want the price to go down a lot, so you can sell it at a higher price.
If you are a call writer and sell a call, the upside potential is the premium for the option; the downside potential is unlimited. You want the price to stay about the same or even drop a little. So that whoever buys your call doesn’t force you to sell. If you are a put writer, and you sell a put, the upside potential is the premium for the option, The downside potential is the amount the stock is worth. You want the price to stay above the strike price, so the buyer doesn’t force you to sell at a higher price than the stock is worth.
You can lose more than you invested in a short period when trading options. As the holder of an option, you risk the entire amount of the premium you paid. But as an options writer, you take on a much higher level of risk. For example, if you write an uncovered call, you face unlimited potential loss. This is because there is no cap on how high a stock price can rise.
How Day Trading Works: Rules
To day trade, you have to follow the rules that come along with it, so you don’t get yourself in a bind. The stock market has rules in place that need to be followed, or you can put yourself in a situation where your access may be restricted. So, it is important to learn all these ahead of time to avoid any headaches.
The Financial industry regulatory authority (FINRA) pattern day trader rule is any customer who executes four or more “day trades” within five business days, provided that the number of day trades represents more than six percent of the customer’s total trades in the margin account for that same five-day period; business day period. It is very important to know if your account is less than 25k. When your account is over 25k, the only three-day trades pattern day trading rule doesn’t apply to trade stocks.
It is also important to know that you only get one pass on this mistake for the life of your account. So, if you “accidentally” place the fourth trade in five days you will be required to deposit 25k. Your account will be frozen until the money is deposited, or you use your one-time pass. Another rule that is important to know is if you sell a position that you purchased with unsettled funds in your cash account, you will incur a Good Faith Violation. It’s called a ‘good faith violation’ because there was no effort in ‘good faith’ to add necessary funds to the account before the settlement date.
How to Make Day Trading Work for Me
You need to be well informed when it comes to the stock market and have a plan and strategy. A plan without action is just a dream and if you want to make your dream a reality you’ll have to put in the effort. Once you learn the strategy, you need to use a trading platform to put to the test what you have learned with paper trading. Once you have practiced enough times when your paper money is consistently earning gains, then you can enter the live market.
Start small but keep your vision big because that will push you to stay focused. Start small and remain consistent. Not everyone’s journey starts the same, but we all have the same goal; to be successful. Focus on quality over quality when it comes to day trading. Choosing quality over quantity means we have fewer things to take care of. Moreover, it can help to reduce stress and overwhelm in all areas of life. The less you have to worry about, the more focus you can dedicate to your trades.
Summary: How Day Trading Works
You have learned how day trading works and what it entails. You have learned, like everything in life, that not following the day-trading rules has consequences. It is important to follow those rules, so you don’t place yourself in a position that keeps from you generating income and reaching your goals. You don’t want it to be like grabbing onto a handful of sand and watching it slip through your fingers. We all need something to believe in, and those beliefs push us to achieve our goals. I can teach you how to day trade like the top 10% without a complicated strategy or any technical indicators, even if you are a beginner.
My goal has always been to teach as many day traders to achieve their personal financial goals, whether they are novice traders or experienced traders. The MK VIP training has plenty of resources to help you get started on reaching your day trading goals. I teach the working class how to earn $10,000 a month through day trading. I help my students avoid the challenges I faced when I first became a day trader. As of now, MK Financial LLC is already the #1-day trading coaching business in the US in just one year. You are just a click away from learning what you need to become a day trader with any amount of capital and take your family’s life to the next level.
Maurice Kenny has helped over 600 people become financially free through one-on-one coaching, mentorship, and options trading strategy. Many of these new traders are now full-time traders, and they all started by watching his 1-hr webinar.
Feel free to check out other FREE educational resources to help guide you as you begin your new journey to financial freedom.
Also, download a (FREE E-BOOK) by Maurice Kenny, “DAY TRADE LIKE A MILLIONAIRE.”