Day Trading

Traders buy and sell financial assets within the same trading day

Author: Rohan Arora
Rohan Arora
Rohan Arora
Investment Banking | Private Equity

Mr. Arora is an experienced private equity investment professional, with experience working across multiple markets. Rohan has a focus in particular on consumer and business services transactions and operational growth. Rohan has also worked at Evercore, where he also spent time in private equity advisory.

Rohan holds a BA (Hons., Scholar) in Economics and Management from Oxford University.

Reviewed By: Manu Lakshmanan
Manu Lakshmanan
Manu Lakshmanan
Management Consulting | Strategy & Operations

Prior to accepting a position as the Director of Operations Strategy at DJO Global, Manu was a management consultant with McKinsey & Company in Houston. He served clients, including presenting directly to C-level executives, in digital, strategy, M&A, and operations projects.

Manu holds a PHD in Biomedical Engineering from Duke University and a BA in Physics from Cornell University.

Last Updated:March 19, 2024

What is Day Trading?

Day Trading is a method of participating in financial markets where traders buy and sell financial assets, such as stocks or currencies, within the same trading day. Traders usually rely on small price movements to secure profits without considering the fundamental long-term potential of an asset.

Only institutions and other big investors traded securities in the past due to the high costs and technology required. However, with the rise in popularity of the internet, day trading has become accessible to anyone connected to the internet and a smartphone.

This, however, does not mean anyone can be successful. Day trading is a highly speculative method of navigating the financial markets. Money can be made as easy as it is lost, and only well-experienced and conditioned individuals will find consistent success.

Essentially a trader will either long the security (buy the asset with the hope it increases in value to sell later and profit off the positive price difference) or short the asset (sell the asset with the hope that price decreases in value to later buy back at a lower price profiting off the difference.

Although this sounds easy, a strategic approach and strict psychology must be a consistent day trader. This speculative method is a game of chance, so you must develop your edge and beat the market over time to be successful.

Key Takeaways

  • Day trading is a speculative, short-term trading strategy accessible to retail traders through online platforms. It's highly speculative and success demands experience and discipline.
  • Day traders often use leverage to amplify gains, but it also increases potential losses. Effective risk management is crucial in day trading.
  • Becoming a successful day trader requires a well-defined strategy, disciplined psychology, and risk management. It's not about winning every trade but consistently outperforming losses.
  • Day trading is high-risk and most retail traders fail. Making a living is challenging, and institutional traders have advantages. It's a long-term endeavor, not a get-rich-quick scheme.
  • Day trading is a career that requires dedication. Traders should match their strategy to their personality and risk tolerance, control emotions, and find joy in the process. Strategies range from quick scalping to longer-term swing trading.

How to Become a Successful Trader?

The most important goal for any trader should be consistent profitability. Being successful does not mean winning every trade. Instead, it is about developing an edge to make your wins outweigh your losses and staying in the market long enough to see results.


Having the edge over the market is the only way to succeed long term. Anyone can make money off a single trade, but having a strategic edge leads to consistent growth over time. There are hundreds of strategies available but finding one that works for you can be difficult.

The best way to maintain an edge over the market is to have a strict strategy that you do not deviate from. There have to be controlled variables and a big enough sample size to let your edge play out. We will talk more about different strategies later in this article but first, let’s first understand the importance of a pre-defined strategy.

Your strategy must be tried and tested over time. There are thousands of different strategies that are proven to be profitable. However, you must find one that matches your personality, schedule, and risk tolerance.


One of the most difficult skills to master as a day trader is the psychology to thrive in such a fast-paced and high-risk environment. The difference between a successful and unsuccessful trader can be entirely their own psychology.

Emotions like fear and greed act as stumbling blocks for any trader. One must approach trading from an emotionally unbiased point of view. Your psychology must be developed through experience and research over time. This skill is often the last and hardest to develop.

Your psychology can be developed through multiple avenues. Many successful traders would recommend journaling to keep on top of your psychology. Keep a written log of all the trades you take, why you have taken them, and what the outcome was.

Having a physical log of your trades will make you take accountability for your wins but, more importantly, your losses. Anyone can make money day trading, but the people who make money consistently will have high accountability for winning or losing trades.

Risk Management

Similar to your strategy, you must have strict and predefined risk management. Experienced traders may have a larger risk appetite. However, beginners should ideally only risk 1-2% of their capital per trade. This ensures that new traders do not face big losses ensuring the longevity of their survival in the market. 

Managing risk is an essential skill all successful day traders must develop. Having an edge over the market is not enough. You must allow your edge to play out over time. Not every trade will win, and most traders will likely experience extended losing streaks.

One’s psychology is directly linked to risk management. For instance - if a trader completes an impressive winning streak, they may feel like their trade set-up is a given success with no chance of failure. Conversely, placing a much higher level of risk on one particular trade can set you back a lot and potentially blow up one’s trading account.

Time and Experience

Day trading has gained widespread exposure in recent years on social media, with people showing off flashy cars and lavish lifestyles. Unfortunately, this gives the uninformed impression that this approach is easy and a foolproof method to get rich quickly.

The complete inverse is true. One of the most valuable characteristics of a successful trader is experience and longevity. Day trading should be treated like any other profession. For instance - a doctor spends around 8 years to master their profession, but people expect to be rich within a few months of trading.

Many traders will not find consistent profitability for their first few years of trading. Only the most determined traders will last long enough to realize the compounding effects of their efforts and experience in the market.

Very few exceptional traders will become profitable in a short timeframe, such as their first 6 months to a year of trading.


Institutions usually trade with a huge amount of capital. However, retail traders could effectively trade with as little as $100. Therefore, it is essential you only risk what you can afford to lose. Of course, this is all relative to the individual or corporation.

To trade, you need access to capital. Beginners should initially take small positions in the market due to their inexperience. Then, most beginners are advised to begin trading on a demo account (trade the real securities using fake capital).

Alternatively, experienced traders who lack the required capital to make a sustainable living from trading can opt for proprietary funds. After passing a verification, a trader can become funded, meaning they will become an independent contractor trading a firm’s capital.

An example of a Prop Fund is FTMO, however, only experienced and well-trained traders will have the ability to pass the verification process. Strict risk management and a well-defined strategy are essential to becoming a funded trader.

What is Leverage?

Leverage enables traders 'borrow' capital to gain a larger exposure to the market with a comparatively small deposit. Larger exposure to the market means larger exposure to potential gains but also losses.

To profit from the smaller price moves seen during short periods such as days and weeks, traders require leverage (a form of debt). As a result, it is common to see traders use a range of leverages from as low as 2x their capital to over 100x. 

It must be noted higher leverage leaves you open to higher risk. Although leverage is a tool that enables traders to access markets with lesser capital, it should not be exploited or misused.

Where do I Place Trades?

Retail traders will use brokerages to place their trades. These institutions provide the marketplace for facilitating trades and profit by charging a fee per transaction. 

Once you have signed up and deposited capital to a broker, you can use a computer or smartphone application to execute your trades. The most popular trading app is MetaTrader 4.

Opportunities can be found, executed, and monitored from your smartphone, making it a truly self-sufficient career choice. However, the simplicity does not make being successful easy in this industry.

What are the Risks?

Day Trading is a high-risk, high-reward industry that has the potential to change people’s financial situation drastically, for better or worse.

  • As a retail day trader, you are purely responsible for any financial losses incurred while trading. It is a fast-paced industry that is not forgiving. Many financial losses can be made during your development as a trader, often causing people to give up.
  • It can be an extremely stressful career, especially as a corporate trader. Being responsible for personal finance and the capital of their institution.
  • Day trading usually involves taking on debt to execute trades. Using margin and taking risks with borrowed money can leave you in serious debt or potential bankruptcy.
  • Misinformation is abundant online about trading. People all across the internet are selling courses and mentors looking for students. Due to the high-income potential of teaching this skill, many under-qualified individuals act as knowledgeable traders.
  • It can be very mentally taxing working in an active environment 24/7, people can become too attached, and unhealthy addictive habits start to appear.

Can You Make a Living from it?

The short answer is yes, but unlikely. Estimates suggest that 95% of traders lose money due to the high level of skills and patience combined with industry risk.

Day trading is often perceived as gambling by financial professionals and investors due to its speculative nature. Financial advisors tend to favor a more long-term approach to growing wealth for most individuals.

Without market experience and knowledge, it is understandable why people take this approach to day trading. Unfortunately, very few retail traders will be able to make a living in this industry due to a lack of adequate training and time spent honing their craft.

Most day traders who make a living work for larger institutions such as hedge funds and proprietary funds. This is due to the expensive instruments and resources they are provided by the company, such as analytics software, capital, and a trading desk. 

This gives institutional day traders a significant advantage over their lesser supported retail counterparts.

The average salary of a US day trader, according to Glassdoor, is $74,000 per year as of 2021. However, this can be misleading. There is a great degree of variance as this statistic is about corporate day traders. In addition, many retail day traders lose money each year.

Is Day Trading for you?

This is a career that takes time to develop. It is not something you can be successful at with half-hearted work.

  • You should first seek to learn the basics of what makes a successful trader and the fundamentals of how the markets work.
  • Finding the right strategy can be challenging and requires lots of work. You must be prepared to invest hours into developing your edge within the market.
  • Start small. Pick one security to trade, whether a stock, currency pair or commodity. Keeping the process as simple as possible will help you to avoid confusion.
  • Having complete control of your emotions is a vital skill for any trader. You should be focused on what the charts and your analysis tell you.
  • Trading is a career you must find joy and satisfaction in to be successful, you must enjoy the process of trading, or you will never stick around long enough to become a success.

Trading Strategies

There are seemingly infinite trading strategies, and finding the correct style for your mindset and personality is integral to becoming a successful trader.

There are different techniques used to make profits from day trading. Each trader will use a unique trading strategy based on risk tolerance and capital.

Time Frames

  • ScalpingGetting in, out & out of trades very quickly, these day traders will use high leverage to profit off the smallest price moves. A scalper could hold a trade for as little as a minute before taking a profit.
  • Intra-Day: Intra-day traders will aim to find, execute and profit from their trades within 24 hours. They can expect to hold trades open between 1 and 24 hours.
  • Swing Trader: More concerned about longer-term price, swing trading is a less time-intensive and potentially safer strategy. Trades can be expected to be held for weeks and months.

Technical Analysis

  • The art of Price Action. Traders will analyze a chart of prices over time using a range of indicators and rules to determine the direction price is heading.
  • The most common and simple form of technical analysis is pattern recognition. A trader would look to find predetermined high-probability patterns that have been repeated throughout history.
  • Indicators are built-in scripts that allow a different perspective of what has happened with the price. The majority of the technical indicators are lagging, meaning they use past data to aid in predicting future movements.
  • The best way to practice technical analysis is a method called backtesting. You look back through time and test your plan against the price action from the past. Many traders attribute their success partially to their experience gained from backtesting.

Fundamental Analysis

  • Analysis of macroeconomic events which impact the price of different securities.
  • Usually used alongside technical analysis to build overall bias of price direction.
  • The financial markets are a 24-hour industry due to the widespread economic power across different time zones. There is a constant flow of news and metrics released to impact price.
  • An example of a directory for different fundamental announcements is

Your trading strategy should be unique to your personal position. For example, some people prefer a more passive and laid-back approach to trading, opting for a longer-term swing trade position.

Some people may have a more significant mental capacity for risk and enjoy scalping. Regardless of how and when you trade, you should have a predetermined plan of action that best suits your schedule and personal psychology.

What are Essential Tools & Resources for a Day Trader?

Trading is an individual career, although you are participating in a market with potentially millions of individuals. Therefore, a successful trader will have to be equipped with the right resources to navigate the markets successfully.

Trading View

  • The most popular application for analyzing price charts of different securities, with hundreds of indicators and tools built-in. 
  • Has a free but limited version as well as multiple paid upgrades.
  • Provides past and live price data, allowing traders to backtest and trade in real-time.

Bloomberg Terminal

  • It gives access to real-time market data, which can be essential to a traders specific strategy
  • Traders will often use expensive software and resources to access the highest quality market real-time data and news.

Electronic Communication Network (ECN)

  • An ECN is a system that matches buy and sell orders between all participants within the market.
  • The ECN displays the latest available Bid and Ask quotes; therefore, selecting an appropriate ECN to use is detrimental to a trader’s success.

Day Trading Dictionary

  • Long - Buying a security with the belief that it will increase in value.
  • Short - Selling a security with the belief it will decrease in value
  • Bid Price - The price traders are currently bidding at to buy the underlying asset
  • Ask Price - The price the traders are currently asking to sell the underlying asset
  • Forex - Foreign exchange, this is a market of different currency pairs, for example, the Pound Sterling (GBP) against the Dollar. GBP/USD
  • Derivative - A market in which a contract between two or more parties whose value is based on an agreed-upon underlying financial asset (like a security) or set of assets (like an index). 
  • Spread - The difference between the ask and bid price of an underlying asset.
  • Volume - The total number of shares or contracts traded within a period.
  • Liquidity - The combination of buyers and sellers
  • Limit Order - An order to execute either long or short at a specified strike price
  • Market Order - An order which is set to execute at the next available moment
  • Stop Order - An order used as a risk management tool. This will close the trade if the price hits a pre-determined level.
  • Candlestick is one of the most commonly used charting options. It shows the high, low, open, and close prices during a period.
  • Volatility - The rate at which the price of a security increases or decreases over a particular period. Greater volatility brings opportunities for increased wins and losses.

Researched and authorized by Sebastian Whitehead | LinkedIn

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