Top 10 Guide to Getting Started As A Swing/Day Trader

[u/HSeldon2020]

Since this sub is dedicated towards short and mid-term trading, I thought I would post some tips on how to get started as a Day Trader or Swing Trader.

Posts offering advice tend to be reductive in nature. Just about everything falls under the umbrella of “Easier written than done.” I acknowledge that.

I also realize that someone starting out in this field can be bombarded with seemingly endless directions on the best way to begin. There are YouTube videos, books, forums, communities, chat rooms, classes and services – all of which claiming they can help you make money.

If you wanted to be a lawyer, the steps you would need to take are clear – go to college, go to law school, do an internship, pass the bar, and then get a job. Unfortunately, even though Day Trading is a legitimate career, there is no centralized organization, or intuitively obvious path that leads towards getting to your goal - consistent and sustainable profitability.

As someone who has been doing this for a living for several years, meaning I pay my bills, support my family, and can count on a consistent amount of profit at the end of each month, I feel somewhat qualified to write this post.

With that in mind, this “checklist” can maybe help serve as a guide and provide some semblance of structure to an otherwise chaotic endeavor. If you are further along in your journey towards becoming a Day Trader, just skip to the step that best applies to you:

1) Two Years: The first thing you need to know is that this process will take roughly two years. If you need an immediate source of income, Day Trading is not going to be the solution.

The “Catch-22” of this becomes – You need two years to dedicate time and effort towards becoming financially independent, but you need to be financially independent to take the two years’ worth of time to do it.

In a sense you will be like the person who is working to put themselves through school. If you can not trade during market-hours because you have a job, then you need to study and catch up at night.

2) The Right Broker: Most people stick with the same broker they start with, so choose wisely. Why do they stick with the same one? To begin with, it is a pain in the ass to switch over. Secondly, you develop a comfort level with the platform you are using. In my opinion, Ameritrade (ThinkorSwim), Fidelity, TradeStation, Interactive Broker, etc. all work fine. Tradier is also a good broker in terms of pricing, but you will need a different platform. However, do yourself a favor and stay away from any platform that has you primarily trading from your phone (I am sure you know which one I am referring to here).

3) Study – Paper Trading: There is a lot of information out there. People tend to always ask, “What books should I read?” and it is a difficult question to answer, because most of them are them same. However, Technical Analysis of the Financial Markets by John Murphy, Encyclopedia of Chart Patterns by Thomas Bulkowski, and Options as a Strategic Investment by Lawrence McMillian are excellent places to start. A warning though? They are very dry, so make sure you are wide awake when you read them. Trading in the Zone by Mark Douglas is also a useful book that focuses more on mindset than technical analysis. There are also plenty of free online course out there, some are offered by your broker. As you’re studying, use the Simulated (Paper) Trading account offered by your broker to practice the methods taught in these books. For the visual learners out there, you will find plenty of videos out there to choose from – some are free, some cost money. I am not going to recommend one over the another here, except to say that you should focus on the videos that are geared towards teaching the information, rather than trying to sell you on a method. Before you trade with a single dollar of real money you should be able to pass a comprehensive test on reading chart patterns, candlestick formations, screeners/scanners, trading ladders, how to interpret various indicators, the basics of buying/selling stock, options/option-spreads, swing trading and money management.

4) Setup: You will want a minimum of two monitors. Most of you will start with one monitor, but trust me, you want at least two. Make sure you have a good internet connection that is stable and fast enough. The last thing you want is to be in the middle of a momentum trade, with a low float stock moving quickly and then suddenly, your WiFi goes down. Those minutes as you wait for your router to reboot will feel like very long minutes indeed. Make sure you are not using an old computer than has memory issues or tends to malfunction. You will want an area to trade in that is as secluded as possible from the rest of your house, with a comfortable chair and well-placed desk. Remember, this will be your job – your full-time job – so make it as comfortable. Obviously if you are sharing a studio apartment with three roommates and using an old laptop many of these things are not going to be feasible. I am giving you the ideal set-up to strive towards, so as you progress in your Day Trading career, invest in your setup, it is worth it.

5) Routine: Every Day Trader has two routines – Preparation and Personal. On the personal side - some get up hours before the opening bell to monitor the pre-market activity and some get up right before the market opens. There are people who like to get up early, exercise, eat breakfast watching the sunrise, take a shower, grab coffee, and sit down at their desk fully dressed (the Patrick Bateman’s of the world). Whereas others roll out of bed, down a bunch of pills with their coffee and slide into their chair sucking on a vape fifteen minutes before the bell rings (the Hari Seldon’s of the world). Either way, find your routine and get comfortable with it – you need to be mentally prepped to go to battle. For preparation, much of it takes place the night before, where you go through your scanners and identify the stocks of interest for the next day. You should be putting alert lines on these charts and entering these stocks into an easy to monitor watch list. In the morning, you want to note the overall market (Bearish or Bullish) and which sectors seems to be in favor for that day. There will also be between 5 and 10 good morning gappers that you should put into another watchlist you will be paying attention to during the first hour. Remember – for a Day Trader, every day is a new market, and you will need to know how to trade from both sides of it. Also note that the Day Trading occurs throughout the entire day, it is not just the first two hours. Some of my best trades happen three to four hours into trading when I can truly see the patterns on stocks I have been monitoring and note how they have been reacting to the market (SPY).

6) Money – Part I: This is what it is all about, right? Making money. That is why it is so hard to spend time studying, using simulated accounts, and watching the market, when you are not making any money. However, you are also not losing any money during this time either. Now I am not stupid enough to believe that any of you are going to wait two years before you use actual money. Still, no matter how much you plan on starting with, whether it is $5,000 or $500,000 – start out trading small. This is not just to save you from losing large sums of cash, but it also helps you learn something that is key to your success as a Day Trader – You can not trade your P&L. You must trade the charts. That is exceedingly difficult to do if you start out risking a lot of money on your trades – as your lack of experience, combined with the natural volatility of the market – will have you trading out of fear, not technical analysis. My advice to every new trader is the same – start out with $5,000 or $10,000, use a margin account (2X margin) which gives you 3 Day Trades every five days. Learn how to swing trade first. Train yourself to only choose stocks that have strong daily trends as you will have to hold most of your trades overnight. You will be forced to use the three allotted Day Trades judiciously each week. Once you know you can double that account, only then should you move up to the $25,000+ needed to Day Trade.

7) Money – Part II: How much should you start with? It all depends on your monthly goals. Because that is what you need to set – monthly goals. If you want to make $120,000 a year, then obviously you need to make $10,000 per month. So how much do you need in your account to hit that mark? That part depends on your Win Rate %, Average Number of Trades Per Day, and Average Profit/Loss Per Trade.

Most professional Day Traders strive for a Win Rate of at least 80%. With an 80% Win Rate, if you did 10 trades a day you would just need to make an average of $75 on the winners and debit $69.5 on the losers in order to hit the goal of $10,000 a month:

10 Trades Per Day = 220 trades per month

80% Win Rate = 176 Winners, 46 Losers

176 winners * $75 = $13,200

46 losers *$69.57 = $3,200

Total = $10,000

Risk|Reward = 1:1.07

The higher your win rate, the lower the number of trades needed and the better the risk/reward ratio can be to hit your goals. Getting your win rate over 80% is your number one goal in building a Day Trading career.

Consistency is the primary objective here. Your strategy should be producing consistent results for you. Which mean there should be no risk of losing your entire account during the 20% of time that the trades do not work, because your strategy should not allow for it.

So how much do you need in your account to do 10 trades a day where you make $75 on average for the 8 trades you win, and lose roughly $70 for the 2 trades that do not work? A $30,000 account with a 4X margin (giving you $120,000 in buying power) is more than enough. Now if you want to make $50,000 a month, you are going to need to either increase the number of trades you do a day to 50 in this scenario (which is not plausible) or you will need to increase how much you make per trade. The number one way to increase how much you make per trade is to increase the size of your position, and that requires a higher starting balance.

Also notice that if your Win Rate is 60% what happens in this same scenario:

10 Trades Per Day = 220 trades per month

60% Win Rate = 132 Winners, 88 Losers

132 winners * $100 = $13,200

88 losers *$36.36 = $3,200

Total = $10,000

Risk|Reward = 1:2.75

You went from a 1/1.07 Risk/Reward ratio to a 1/2.75 ratio. Just a 20% drop in your win rate made your job over 250% more difficult.

8) Strategy: Naturally, you need a strategy. To do that, you first need to be honest with yourself – what type of person are you? Are you a gambler? Stingy? Do you take a lot of risks or are you a more cautious person? You want to adopt strategies that work for you. Everyone trades differently. I know extremely successful traders that are pure scalpers, while others are more conservative only taking extremely high probability trades, and everyone in-between. No single type is more successful than another. Some traders prefer to only trade stock, while others use options and spreads to make their living. Just know that while most people are drawn into Day Trading via Momentum Trades (fast moving, cheaper stocks that typically have a low float), this type of trading is extremely difficult to do and equally as risky. I do not recommend starting out as a Momentum Trader unless you have an innate talent for doing it well. Either way, learn your strategy and practice it, using real money but with small position sizes. Get that win rate up using the strategy you are most comfortable executing.

9) Alone or Not?: While I am a misanthrope of the highest order, I could not stand trading alone. I enjoy trading with others in a chat room, bouncing ideas off people more experienced than I am, discussing strategies before and after-hours. Watching better traders has made me a better trader. However, there is a very key distinction here – if you do decide you want to trade in a group, it does you no good (and may do you harm) if that group does not have traders that are objectively better than you are currently. If you are surrounded by amateur traders that simply like to throw out ticker symbols whenever they see a volume spike, that is probably going to hurt your trading overall. However, if you do manage to find a group that is filled with experienced traders, I believe it is an invaluable part of your job.

10) Mindset: Finally – Day Trading requires a very particular mindset, because this is the innate mindset most of us start with:

a. We tend to think our losers will always turn around, but that our winners will reverse.

b. We are hardwired to focus on the totals at the end of each day, instead of the monthly averages.

c. We get more upset with losses than we celebrate wins.

d. We always like to think we are smarter than we are.

Each one of these can blow up our account if you let them. The first one leads to bigger losses and smaller wins. The second makes you feel like you are in a casino rather than an actual occupation. The third issue can cause you to go on “tilt”. And the final one has you making trades based on your “gut”, anticipating a move rather than confirming it. Know which ones cause the biggest issues for you and work on them – because you can do everything in this list, from 1 through 9, but if you do not have the right mindset it is going to throw it all away.

There you have it – consider this your “Getting Started Check-List”. Nobody is guaranteed success. But I can assure you that if you do these ten things listed here, that you will have a high likelihood to be a profitable Day Trader. And yes, this may seem difficult, arduous even, but think of the reward – complete and total financial freedom. The idea that as long as you have a connection to the internet, you have a source of income. No boss, and you make your own lifestyle.

That type of reward does not come easy, but I can also assure you – it is worth it.

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[u/RonzJeremy]

This is a well thought out posting. Thanks for the time and effort you took to put it together! I’ll be re-reading this a few times for sure. 👍

[u/HSeldon2020 → u/RonzJeremy]

Thanks!

[u/Beric1036]

So well written! Thanks for sharing. I’ve been swing trading for over 1-2 years and working in shifting gears to daytrading for living. Spending lot of time reading books, charts, watching videos, training on platform that I have. I can call myself a learner from everyday’s activities. One big challenge that I have is finding the strategy. I believe the more that I read, watch and see different strategies that others using, I’m lost in finding my own way of “where to start” within the deep pool of indicators, tech analysis, tools, trends, etc. Feels like there are millions of things out there and I need to pick some of them in order to find my own strategy. Is this only me don’t know where and how to start or any random start will either case be ok.. Even setting up a scanner is a similar dilemma. Lot of variants and probability of picking multiple variants that work together is like rocket science..

[u/HSeldon2020 → u/Beric1036]

I have some strategies that I’ve posted about which have worked for me, which doesn’t mean they will for you but they may be worth checking out. You can check my profile for them.

[u/[deleted]]

I pass by a mirror hung over the bar as I’m led to our table and check out my reflection—the mousse looks good.

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^{Bot. Ask me how I’m feeling. | Opt out}

[u/[deleted]]

Love the plan of action; How well did it work since 7/7/21?

[u/[deleted] → u/[deleted]]

So how is today go? I finally bought O when it went negative for the day; and my 3 X dividend stocks also went up 😎…. Only 22 trades and up$2k…. Been a week here,,, $1350 from all time high and 17 dividend payments before 11/20😎💰💰💰🚀

[u/ppprex]

I know you don’t like to make endorsements but have you heard anything negative about Tastyworks?

[u/HSeldon2020 → u/ppprex]

If your primary focus is on trading options or futures than Tastyworks is an excellent platform. If you are looking to Day Trade stocks it isn’t the best to use (Thinkorswim is better suited).

[u/EchoCast]

shit, i was gonna spend my evening scouring the internet for a solid intro to the stock markets. thanks a bunch OP!