Day Trading Stocks

Day trading involves opening and closing positions within the same trading day.

Requirements


Legal Requirements

• Pattern Day Trader rule: 4+ day trades in 5 days
• Requires $25,000 minimum account (US)
• Margin account needed
• Applies to US brokers

Practical Requirements

• Fast internet connection
• Reliable trading platform
• Level 2 quotes and time/sales
• Dedicated trading time

Day Trading Strategies

Opening Range Breakout

1. Mark first 15-30 minute high and low
2. Wait for breakout with volume
3. Enter in breakout direction
4. Stop inside the range
5. Target: Range width extension

VWAP Strategy

1. Volume-Weighted Average Price
2. Buy pulls back to VWAP in uptrend
3. Sell rally to VWAP in downtrend
4. Institutional benchmark level
5. Most effective in first 2 hours

Momentum Trading

1. Scan for stocks gapping up on news
2. Wait for first pullback
3. Enter on bounce with volume
4. Trail stops aggressively
5. Exit by mid-day if not working

Reversal Trading

1. Stock makes new intraday low/high
2. Shows exhaustion candle
3. Volume spike on reversal
4. Enter opposite direction
5. Tight stop beyond extreme

Key Tools

Level 2 Quotes

• Shows order book depth
• Identify large orders
• See bid/ask changes
• Spot institutional activity

Time and Sales

• Real-time trade prints
• Size of trades executing
• Direction of executions
• Identifies buying vs selling pressure

Risk Management

Daily Loss Limit

• Maximum 2-3% daily loss
• Stop trading when hit
• Prevents emotional decisions
• Preserves capital

Per-Trade Risk

• Risk 0.25-0.5% per trade
• Smaller than swing trades
• Multiple opportunities per day

Common Mistakes

1. Trading without enough capital
2. Overtrading on slow days
3. Not respecting daily loss limit
4. Holding losers overnight
5. Ignoring the PDT rule