Music for Trading Vol. 10 | 1 Hour | Calming Ambient Edition 2020|

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It’s easy to become enchanted by the idea of turning quick profits in the stock market, but day trading makes virtually no one rich. Research suggests that 99% of day traders fail to consistently make money and the vast majority lose money. (New to all this? Consult our explainer on day trading.)

If you’re still keen to try your hand at day trading, it’s important to follow some rules so you don’t get in over your head. Here’s how to approach day trading in the safest way possible.
Learn to day trade

There are countless tips and tricks for maximizing your day trading profits. None is as important as these tactics for managing the substantial risks inherent to day trading:

Trade with money you can afford to lose. It’s paramount to set aside a certain amount of money for day trading. Don’t trade more than that amount or use the mortgage or rent money. Why? It’s possible you will lose it. (The same goes for bitcoin. Here’s more on how bitcoin works.)
Start small. Especially as you begin, you will make mistakes and lose money day trading. Keep an especially tight rein on losses until you gain some experience.
Don’t quit your day job. You may have a run of luck, especially if the market’s in a sustained bull run. But you’ll need to see how your trading strategy performs when the market gets rough, especially during a recession, before expanding your efforts. Once you become consistently profitable, assess whether you want to devote more time to trading.

What to trade

To begin, you’ll need to decide what types of securities you’re going to buy and sell. Actively trading stocks (buying and selling in a short timeframe, typically a day) may be the first thing you think of for day trading, but you may also consider bonds, options, futures, commodities or currencies.

Typically, an attractive security for day trading has the following characteristics:

Good liquidity or volume. Day traders like stocks because they’re liquid, meaning they trade often and in high volume. Liquidity allows a trader to buy and sell without affecting the price much. Currency markets are also highly liquid.
Some volatility — but not too much. Volatility means the security’s price changes frequently. This kind of movement is necessary for a day trader to make any profit. Someone has to be willing to pay a different price after you take a position.
Familiarity. You’ll want to understand how the security trades and what triggers moves. Will an earnings report hurt the company or help it? Is a stock stuck in a trading range, bouncing consistently between two prices? Knowing a stock can help you trade it. (Here’s how to research a stock.)
Newsworthiness. Media coverage gets people interested in buying or selling a security. That helps create volatility and liquidity. Many day traders follow the news to find ideas on which they can act.

Stocks are among the most popular securities, because the market is big and active, while commissions are relatively low. Day traders who focus on stocks often rely on “technical analysis,” or analyzing the movements of stocks on a chart, rather than “fundamental analysis,” which involves examining company factors such as its products, industry and management.

While some day traders might exchange dozens of different securities in a day, others stick to just a few — and get to know those well. This knowledge helps you gauge when to buy and sell, how a stock has traded in the past and how it might trade in the future.