Day trading is a popular trading strategy for stocks, forex, cryptocurrencies, and other financial options. Whether you’re looking into trading lucrative stock options or creating a strategy for bitcoin day trading, the concept is essentially the same. As the name suggests, day trading is the buying and selling of financial institutions within the same trade day, perhaps even multiple times.

Taking advantage of small market changes can be highly profitable if one knows how to play the game correctly. It also doesn’t require as much capital to get started as longer term trade strategies, which lends to its popularity. It does require a fair amount of market knowledge and a significant time investment, however, which can make it difficult for newcomers. Most brokers are also ill-equipped to handle the high volume of trades this strategy requires. Luckily, despite the challenges involved, anyone can learn how to day trade effectively.

Getting started

The first thing you’ll need to do is set up a plan for how much you’re willing to risk on each trade. The vast majority of traders stick to the 1 percent rule of trading, meaning that you won’t risk more than 1 percent of your total account on a single trade, although some say 2 percent is acceptable. Either way, you’ll always need to have surplus funds set aside for losses, as these are inevitable for any trader.

It’s also important to start small when it comes to buying shares. It’s generally recommended to only focus on a few stocks at a time when starting out because tracking price changes and other opportunities is easier this way. You may even consider buying fractional shares when possible. Once you’re comfortable taking on more, you’ll have to be prepared to risk much more of your time, as well. Day trading involves tracking the market and making decisions on a moment’s notice throughout an entire trading day. You can think of this as a job more than a hobby.

Charts and patterns

There’s no getting around this: you’re going to have to learn how to read some fairly complex charts and understand market patterns to have any real chance at success with day trading. Many investors use candlestick patterns to track price movements and make their decisions.

A candlestick chart is like a bar chart where each individual bar, or “candlestick,” represents a market day. Each candlestick shows the open, close, high, and low price points for that day. Multiple candlesticks are used to track market patterns over a period of time in order to predict future behavior. Basic patterns are separated into “bullish” and “bearish” trends with each meaning that prices are likely to increase or decrease respectively. Using these patterns in your market analysis will give you a general understanding of when to buy and sell.

Of course, there are plenty of other indicators, as well. For example, the news tends to drive stocks. You’ll need to keep an eye on stock news throughout each trading day for shifts in price action and check general opinions about stocks you’re interested in. Public opinion will often have a significant impact on prices. You can also subscribe to communication services that can keep you updated on stock movements in real time.

Limiting losses

It’s also imperative to keep calm and follow your plan in order to control your risks and limit your losses when they come. Setting up a stop-loss, which determines the amount of money you’re comfortable with losing on a trade, is generally your best bet. When the price reaches this point, it’s best to exit the trade and focus on others. You should also set up a daily limit for the amount you’re comfortable losing across all trades, and take the rest of the day off once you hit this limit. This will allow you to refresh mentally and maintain rational decision making moving forward.

Day trading is a challenging undertaking, and it’s important to accept that you will suffer losses while learning. Even the best traders out there have rough patches. It’s a common saying that if you want to make a 50 percent profit off of trades in a given year, you can expect a 50 percent loss at some point before that happens. Consider these losses as part of your learning process, and don’t let them discourage you. Calculated risks are the only way to profit.