In 2023, you no longer need a broker to invest. You can use your phone to check the value of a stock/commodity, and you can even place an order via a smartphone app. This is why many people use day trading to improve their income.
So, what is day trading?
Day trading is purchasing and selling an asset within 24 hours. This is the opposite of positional trading, where you buy a stock/commodity and hope it gains value in weeks, months, or years. The turnaround is much quicker, which is great for people who can’t afford to immobilize their assets for longer. Since the market is more volatile, the risk and the reward are substantially higher.
With all this in mind, here’s how to start day trading as a side hustle.
1. Pick a trading platform
There are so many unique platforms for day trading for you to choose from. For instance:
- Interactive brokers
- Fidelity
- TD Ameritrade
- TradeStation
Naturally, these platforms are not your only options; you can easily find an alternative.
Still, choosing an online broker is not an easy thing. You can start by making a short list of platforms you’re considering. Then, you can read some reviews with a particular emphasis on user experiences. Once you have this covered, you can find a platform to help you compare brokers. This way, you get their strengths and weaknesses side-by-side.
There are also some personal questions that you need to answer to find the right match. For instance:
- Are you an active or passive trader?
- What are your investing goals?
- What kind of trades do you aim to execute?
You can also pay close attention to factors like security. For instance, is there a two-step authentication requirement? Since your funds and personal information will be on the line, this is something that you must insist on.
Lastly, you would be surprised to learn that not all platforms support iOS and Android. So, if you plan to trade primarily over your phone, ensure your OS is supported.
2. Psychology of day trading
To make money, you need to adopt the right mindset. This is especially important for trading. Following your intuition sounds great, but you won’t be making rational decisions when you’re overly emotional. This is why understanding the psychology of day trading matters.
First, you need to manage your expectations. If you expect to succeed on your first trade, you will likely be disappointed. If you decide to eventually become a full-time day trader and make a fortune this way, you might not make it either. However, if you are patient and only aim to use day trading as a side hustle, you’re immediately off to a safer start.
Second, you need to understand psychological phenomena that affect people while trading. For starters, you need to understand concepts like positive bias and FOMO. What is FOMO in trading? The simplest explanation for this is a belief that trade is so lucrative that everyone who engages with it will make money. Everyone but yourself.
Positive bias, on the other hand, is a belief that good things are more likely to happen than bad ones. This is simply not true. Sure, you’ve heard too many stories about people who changed their lives by placing the right trades. On the other hand, what you haven’t heard are stories of all those who tried and failed. This is another phenomenon called the survivorship bias.
3. Set stop orders
You need to prevent yourself from getting overwhelmed by the market. For many people, losing too much money quickly can be devastating from a psychological perspective. They may try to drag themselves out of this spot by force and get in deeper and deeper.
The same thing goes for winning too much for a single trade. You’ll be too euphoric and feel invincible. In other words, you’ll keep trading and trading more and more recklessly, believing that no force in the universe can stop you. This is the so-called positive bias (that we’ve mentioned already).
To avoid all of this, you need to set stop orders. These are automatically executable orders that stop trading when certain conditions are met. Stop loss can be set to pull out whenever you lose 1-2% of your total net value. Stop gain can be set at 6-7%. This way, you can stay profitable with just 25-30% successful trades, which is huge.
Whenever you’re trading, your priority is to avoid gamble-like behavior. By setting stop orders, you’ll make this as easy as possible.
4. Adopt a strategy
One way to make your trades more systemic, as well as to be less susceptible to biases, is to adopt a strategy. Now, there are many strategies you could try, but there are four that are known to work particularly well with day trading. These are:
- Range trading
- High-frequency trading
- News-based trading
- Scalping
These methods are not just good ways to streamline your trading process; they’re also great to help you learn the ropes. It’s like when you’re trying to learn how to play chess. You should learn one or two openings and then spend hours and hours playing them to perfection. This way, you passively adopt the game’s rules and develop your intuition. Doing this without a strategy (opening) would be incredibly difficult. It’s always good to have some structure to rely on.
Just remember that no strategy can guarantee profit. This is trading, and it’s, by its nature, quite volatile. You win some; you lose some. If there were a way to guarantee a win, there would only be one strategy, everyone would be using it, and the market would close in hours.
Wrap up
While it is technically possible to turn day trading into a full-time thing, this won’t be the case for most people. For most, this is a way to supplement their income and not their primary source of revenue. Setting up this operation with modern tools, automation, and trading resources is easier than ever.
Still, experience is a resource that cannot be made up for with anything else. Only after you learn a thing or two about day trading from your own experience will you be able to make a buck consistently.
As the editor of the blog, She curate insightful content that sparks curiosity and fosters learning. With a passion for storytelling and a keen eye for detail, she strive to bring diverse perspectives and engaging narratives to readers, ensuring every piece informs, inspires, and enriches.
