How to Day Trade

Day trading is one of the fastest ways to turn a relatively small amount of money into a relatively large amount of money – period. If you buy $5,000 worth of a stock that goes up 200% in one day, you’ll make $10,000 in one day.

Here’s a quick guide on the easiest way to start day trading.

Why Day Trade Stocks?

The whole goal of day trading is to make money from stock price movements on a daily basis. To put it simply, day trading offers massive opportunities for profit. Lots of volatile stocks can move up or down 20% to 50% in one day, and even if you use just half of your portfolio, it’s possible to generate outsized returns on a daily basis.

There are countless day traders out there that have turned a small amount of money, like $1,500, into multiple millions. A lot of these day traders have trading chatrooms where they share their “trading secrets” for a pricy monthly fee. Don’t buy these programs. It’s a huge waste of money. Ask yourself, if someone is a profitable day trader, why would they share their secrets? If you want to be successful in day trading, you need to keep your risk under control, and discover what strategies work for you. It’s that simple. There is no magic “day trading secret.”

Step #1: Open Accounts

Before you day trade, you need to have an online brokerage account, but not just any brokerage account. You need to pick at least two online brokers with active-trader pricing.

For 2018, Ally Invest and TradeStation have the best active-trader pricing, no inactivity fees, and are the best all-around brokers for day trading. There are lots of other brokers out there that don’t offer discounts for active traders and charge north of $7.00 per trade. Paying $7.00 per trade will quickly eat into your profits (or amplify your losses) as a day trader.

Step #2: Doing the Research

Once your accounts are opened with Ally Invest and TradeStation (takes 5 mins), the next step is to find stocks to day trade. The “Markets” tab on Ally’s web-based platform is fantastic for finding the best stocks to day trade.

After you open your Ally Invest account, deposit funds, and are ready to trade, your desktop trading platform will look like this with real-time NYSE and NASDAQ market data:

TradeStation’s platform will look like this:

The prices you’ll see on both platforms will be in real-time, and it’s 100% free (some brokers charge a monthly fee for real-time market data).

If you’re looking to follow the trend, which is a very popular day trading strategy, looking at day trading stocks that have already gone up 10% in one day is a good place to start. Experienced day traders like to trade volatile stocks (stocks that move up or down quickly) because there is more opportunity to profit. If a stock doesn’t move, you can’t make any money.

Step #2.5: Why You Need 2 Accounts

You might be wondering, why do I need to have two brokerage accounts? Well, since the US government only allows day traders with less than $25,000 to make 4 day trades in a 5 day period, unless you only want to make 1 day trade per day, you need two accounts. The Pattern Day Trader rule was put in place to protect “unsophisticated” investors from losing their money, but I think it does more harm than good; it’s a strong barrier to entry.

Having multiple brokerage accounts is perfectly legal, and it’s the best way to get around the PDT rule. Two brokerage accounts allow you to make 8 day trades per week, which should be plenty. If you have $5,000 to day trade with, you’ll deposit $2,500 with Ally Invest and $2,500 with TradeStation. This is currently the only way to get around the Pattern Day Trader rule if you have less than $25,000 to deposit.

Step #3: Making the Trades

Once you’ve entered in the ticker symbol into the respective platform, real-time prices and buttons to buy and sell the stock will appear.

The next decision to make is the number of shares you want to buy. The exact number of shares to purchase is entirely up to you. You can buy 1 share or 1,000,000 shares. You’re only limited by the funds you have available. Don’t worry about accidentally buying too many shares relative to your account size, because neither TradeStation nor Ally Invest will let you do this, thankfully.

When it comes to placing orders, we always prefer to use limit orders, because you get to decide what price you want to buy or sell at. A market order will execute your order at the current market price. This is sort of like buying a house without looking at the offering price; for stocks, market orders are only useful if you don’t care about the short-term price movements and just want to trade stock immediately.

As a general rule, most day traders never use more than 30% of their account on any single trade. If you use your whole account at once, you risk losing your entire account in one bad trade. Of course, you could potentially make more money by being aggressive with your trade size, but this is not recommended.

If you get stuck at any point, Ally Invest has 24/7 investing support, and TradeStation has 24/6 support.

What You’ll Need to Open a Brokerage Account

Final Thoughts

The world of day trading is risky but lucrative. As the old saying goes, “fortunes favor the bold.” We can’t stress enough how risky day trading your capital truly is, but if you’re timing is right, and your research is solid, you can turn a very small amount of money into a very large amount of money.

At the end of the day, besides day trading, there are virtually no other types of investments in the stock market that can yield such impressive returns in such a short amount of time.

START TRADINGopen an account on Ally Invest’s site

START TRADINGopen an account on TradeStation’s site

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Updated: January 1, 2019