The world of fiction probably hasn’t done traders any favours. Outsiders probably think that it’s all exactly like the plot of The Wolf of Wall Street or one of the countless other sexed up dramas that offer up a Hollywood hyped up half-truth.
The practice of day trading probably suffers more than most. On top of the fictional stereotypes, the portrayal in the media is that this is some giant ‘get rich quick’ scheme – hardly helped by some scammers who have tried to suggest that it is just that.
Day trading, in actual fact, requires you to be blessed with a lot of knowledge and a decent amount of funds. This type of trader, as Investopedia succintly notes, ‘utilizes high amounts of leverage and short-term trading strategies to capitalize on small price movements’.
Typically this involves engaging in online share trading in highly liquid markets or, often, currency.
So, what does a day look like for a day trader?
Firstly, the planning stage is crucial. While you might be able to think about trades in advance, day traders need to be able to capitalise on the particular strategies that will work on that day. As a result, they need to know what’s new and what that means for their market.
This means learning to structure a day around the start of trading – getting up at least an hour before beginning and mulling over strategies over breakfast – regardless of whether this is an activity being doing alone or within an organisation.
The preparation required involves catching up on the main financial news from across the world, spotting key signs from trusted sources and checking out analysis from commentators whose advice can be trusted. Bloomberg, The Wall Street Journal, the Financial Times, Australian Financial Review and Reuters are key for this.
At this point, it also means:
- Checking a trading account balance to set a ‘budget’. Beginners shouldn’t be risking more than 1% on each trade while experienced traders will stretch this to 2%.
- Looking at an economic calendar to assess major events that might occur. While not all news is planned – natural disasters and tweets from Presidents are difficult to predict after all – key economic statements, elections and financial results can be placed in a calendar so that traders can brace themselves to react quickly.
Then it’s time to access a series of charts and graphs before finally deciding on the day’s strategy.
It’s likely, depending on the market in question, that there might be a flurry of activity at the start of the day followed by a lot of waiting.
As The Balance stresses: “Day trading isn’t always exciting; many days are actually quite boring. Most day traders will admit that they love what they do, though. If you know your strategies well, not much will surprise you or get your adrenaline pumping…although the outcome of each trade is unknown when you take it. That does make it fun, but it should never be viewed as gambling.
“Most day traders have brief days, working two to five hours per day. Five hours is high. Add on a few minutes each day for preparation, and review at the end of the day and week, and day trading still isn’t very time consuming.”
However, such short days are only possible after day traders have picked up a decent level of experience.
Timings also depend on the market you’re involved in. Australian currency strategist Gregory McKenna, for example, notes that currency markets open at 5am Monday, Sydney time and are open 24 hours a day, until 5pm Friday New York time, which is around 9am Saturday morning in Sydney.
This means he has to pay attention to a potential peak time in the afternoon. He explained: “Depending on whether we’re in daylight savings mode or not, I’ll either get ready for some action between 3 and 5pm, or if it’s summer, a little while after that. The action comes from the UK/European open and those traders sometimes like to play odd moves when they paddle in, which can trigger or set up trades. It can also stop you out, so be careful.”
Day traders will then typically end their day by taking a snapshot of the success of their trades in pips, points and cents. This log of activity is crucial to help expand a day trader’s knowledge bank – helping them to pinpoint key losses and gains in order to learn lessons for future days – feeding back into the preparation stage for the next day.
A day trader, therefore, is a skilled, quick-thinking individual who engages in a flurry of high value trading decisions within the first few hours of the day – as well as key peak times relevant for their chosen asset. Beyond that, there’s more waiting around – and time for other pursuits – than the stereotypical image might have you believe.