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
- Mark first 15-30 minute high and low
- Wait for breakout with volume
- Enter in breakout direction
- Stop inside the range
- Target: Range width extension
VWAP Strategy
- Volume-Weighted Average Price
- Buy pulls back to VWAP in uptrend
- Sell rally to VWAP in downtrend
- Institutional benchmark level
- Most effective in first 2 hours
Momentum Trading
- Scan for stocks gapping up on news
- Wait for first pullback
- Enter on bounce with volume
- Trail stops aggressively
- Exit by mid-day if not working
Reversal Trading
- Stock makes new intraday low/high
- Shows exhaustion candle
- Volume spike on reversal
- Enter opposite direction
- 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
- Trading without enough capital
- Overtrading on slow days
- Not respecting daily loss limit
- Holding losers overnight
- Ignoring the PDT rule