How much would you ideally like to make per hour? If someone was to ask you what your time was worth to you per hour, what would you say?
Is your time worth $30/hour? $60/hour?
If I told you that you could make $600 an hour in the stock market would you believe me?
In this article, I’m going to explain how that is possible with day trading.
What is Day Trading?
Day trading is simply buying and selling a security within the same trading day. This would be like if you bought Disney stock on Monday and sold it before the close of the market that day. Pretty simple, right?
Many people day trade to make profits off of short-term price swings. They are not concerned with the fundamentals of the company (They could care less what the company does). They solely rely on technical indicators (charting patterns) to get into and out of a stock. Profits can be taken in as little as a few seconds. Yes, you read that right, a few seconds. Like the time it takes for a stop light to change or to put on pants.
One of the main advantages with day trading is that you do not risk any money overnight. The stock you are invested in could gap down severely off of bad news in the after hours and there will be little you can do from sustaining heavy losses. The market as a whole could also tank because of some detrimental economic event and your stock could take a big hit from that as well.
For those of you who have subscribed I provided you with my eBook, The Flying V, which is the trading strategy that allowed me to quit my job. This strategy was a day trading approach and I took profits of roughly 100-300 dollars every day; risking nothing overnight. Most of the time I took these profits in less than 30 minutes! This equates to making $200-600 dollars an hour. Now that’s a good value for my time!
If you’ve learning anything from my blog you will realize that trading is a double-edged sword! This means that we could have just as much downside as upside. Day trading can get highly speculative and it is a much more advanced trading strategy. You could just as easily sustain losses in a matter of seconds in these trades. I did! Not all trades are winners. If you are not careful, they can turn into massive losses in a blink of an eye.
This trading is so short-term that it can cause investors to be very emotional. Speaking from experience; when you enter a day-trade your heart is pounding and you have an adrenaline rush watching the value of the trade move up and down. As I have stated many times in previous articles, you want to be as unemotional as possible because you do not want to make irrational decisions.
I would not recommend day trading until you feel you have a proven strategy and can read technical charts to an advanced degree.
Pattern Day Trader
To protect yourself and the brokerage firm in which you hold your account there are some restrictions to day trading. If you have more than 3 day trades in a 5 business-day rolling period, then you will be coded a pattern day trader. Read that sentence one more time and let it soak in. The minimum requirement for a pattern day trader is $25,000 dollars of equity in your account. Let’s take a look at some examples so you fully grasp this concept.
If you were to day trade Tuesday, Wednesday, and Thursday as shown above you could not day trade again until Tuesday the 8th. If you were to invest any time before then you would be coded a pattern day trader and you would have to have $25,000 dollars in your account.
As a pattern day trader, you can have UNLIMITED day trades. As long as you cover the $25,000 dollar equity, you do not have to worry about how many day trades you have in a 5 business day period. If you get coded as a pattern day trader and do not have sufficient funds, firms will let you take an exception and remove the coding from the account. Firm policies vary but most firms will give you a ONE-TIME exception or an exception every certain # of days.
If, however, you were to incur a pattern day trading coding more than once within the firm’s stipulations, you will be limited or cut off from trading so it’s very important to keep track of the dates. You can always call your brokerage firm to double check before you make another trade.
Let’s look at another example
If you day traded these 3 days, when is the next time you could have a day trade?
If you guessed Wednesday, July 9th, you would be correct. Recall that it’s 5 rolling BUSINESS days. July 4th is a holiday and does not count.
Day trading can be a great way to take profits quickly on short-term price movements. Again, I would advise being advanced in technical charting patterns before going into this form of trading as you could sustain losses just as quickly. As always, have an exit strategy before you get into the trade and stick to it! Since day trading can get highly speculative, I recommend only using a small portion of your portfolio to conduct these types of trades.
Homework: How many days can you day trade without becoming a pattern day trader? Make sure you understand this concept. Compare the risk and rewards if you were going to begin day trading in your account today.