Day trading is a cut-throat business where you pinch pennies. If a day trader could find ways to scrimp and save an extra quarter of a percent profit per day, this would add up to over $15,000 per year based on a $25,000 trading float. Below are a few tips for day trading that will hopefully save you at least a daily latté, but hopefully more.
Finding Discount Brokerages
Day traders usually make income by adding up small profits on multiple transactions. Some equity traders will buy and sell hundreds of times per day. Gleaning a small saving from each trade will increase a day trader's profit. Don’t assume that your brokerage is a benevolent philanthropist. Ask for better rates. Shop around and compare.
- Tip: Consider joining a remote proprietary trading firm.
Proprietary trading firms come in two basic flavors. One type will allow you to retain 100% of your profits and may charge around $2.00 per 1,000 shares. This in itself might be a multiple saving over the traditional discount broker.
Another type will provide lower transaction costs, possibly 20 cents per 1,000 shares, but they will also want to split the profits. If you add liquidity to the market from buying at the bid and selling at the ask you may even gain a net rebate on your transactions.
High Liquidity
Stocks with low daily volume turnover are dangerous to many day traders. A highly liquid stock will allow a day trader to buy and sell without significantly impacting stock prices. The bid and the ask will be much closer in value when a stock is actively traded. Tight spreads prevent large losses due to slippage, which is more pronounced in illiquid stocks with wide spreads.
Investopedia writer Justin Keupper states in his article Day Trading Strategies for Beginners that high liquidity and volatility are important criteria.
If stock prices also seem to go way up when you buy, or drop dramatically when you sell, consider trading stocks with a higher daily volume. Consider stocks that trade millions of shares per day.
Technical Indicators
Price- and volume-based indicators assist day traders to make prompt decisions to buy and sell stock. Proficient day trading often includes quick analysis of momentum, trend and volume indicators. Investors unfamiliar with such technical indicators may experience indecision or apprehension when trying to decipher the trading signals while stock prices move.
Many day traders start out with trading Moving Average Convergence Divergence (MACD) crossovers. Knowing key support and resistance levels will help create many profitable trades. Moving averages have been a staple for equity traders, as have Bollinger bands. Stockcharts is a good place to learn the basics of most indicators.
Fast Internet Connection and Platform Speed
A quick source for stock price information is very important to day traders. The latency between any stock market transaction and the trade printing on a day trader's computer screen should be low. Slow data feeds translate into missed opportunities for the day trader.
If you experience seconds of delay between hitting the market trade button and the actual trade, investigate why this is happening.
- Is it because you are still on dial-up?
- Is your local Internet unreliable?
- Are new Internet services available, such as mobile devices that work off cell-phone towers?
Multiple Stock Charts
Day traders usually focus their attention on trading signals generated in short-term charts. Understanding the big picture can improve the reliability of trading signals. Longer-term charts might reveal support and resistance levels created over many days. Or the daily price chart could help establish a trend that is difficult to discern on a narrow time frame chart.
Try this: open a chart with one-minute bars, five-minute bars, fifteen-minute bars, a three-day chart, a 30-day chart, and a yearly chart. The last two charts might be viewed as excessive but it is better to have too much information than too little.
Quality Charting Services
Discount brokerages will often provide free charting services. These may or may not be adequate for a day trader's needs. Quality charting services should include the ability to view candlestick and OHLC (open/high/low/close) charts. Watching each trade in a tick chart is valuable as well.
As discussed in the previous heading day traders often need access to multiple time frames. Services that allow toggling between logarithmic and linear price charts are useful.
Successful Day-trading Tips
Day trading involves confidently making quick decisions. Years are invested into learning tactics and honing discipline. By applying a few cost saving tips, day trading can become a profitable and rewarding career, although it also carries risks.
