How to start Day Trading A Funded Account ?

Chapter 1

Introduction

The world of financial trading is full of misconceptions, uninformed opinions, stereotypes and urban myths.

 

Hollywood movies, news outlets and even politicians have all done their part to distort the general public’s idea of what trading is and what traders really do.

 

Let’s immediately clarify a few important concepts so that they are clear to us all while reading this e-book; we feel it’s important. Shall we?

What actually is Day Trading?

One of the most common misconceptions is about the very definition of ‘Day Trading’.

 

Most people have only a vague idea of what day trading really is and what a typical day looks like for a day trader. So let’s start by clarifying that.

 

Day trading is the process of buying and selling the same security multiple times, within the same day with the objective of making a profit. The trader would then close all positions at the end of each trading day leaving him/her with no overnight exposure.

 

Make no mistakes, Day Trading is nothing like gambling or playing the lottery. Not even close.

 

You thought it was easy? Think again.

 

Traders around the world – both institutional and retail – study, learn and work each day to find new and more accurate ways of calculating the probability of whether the price of a security will move up or down during the upcoming few hours.

 

Decisions are seldom taken based on the throw of a die or human emotions.

 

Day Trading is both “the art and the science of calculating and managing probabilities, potentials and risk in order to make a profit”.

 

A day trader’s job is to calculate the probabilities of a movement in price in a certain direction in the market or in a particular security.

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Day trading is not easy

In the real world, Day Trading is just like any other job as difficulty goes. It’s neither easy nor hard if you know what you’re doing, if you focus and if you apply yourself to it; it’s a different story for those who fail to pay day trading the respect it deserves.  

 

Day Trading requires discipline, patience, self-control and emotional stability.

 

If you think that this business only requires you to get up in the morning, open your brokerage account and choose a few trades that pick your fancy, I warn you now, you might end up burning many accounts before closing a trading year with a single dollar in profit.

Mens sana in corpore sano

(Latin for “Healthy mind in a healthy body”)

In our opinion, your trading career is a reflection of your lifestyle and your results are influenced by your character.
If you choose to go to bed late to go out partying or if you don’t take care of your body and become lazy and impatient, well, then that’s how your trading will also look.


You’ll likely be tired and will struggle to focus on your trading. Being tired, you’ll also be more likely to make impulsive decisions out of impatience and to let your emotion impair your judgment. 

 

On the other hand, however, if you sleep properly, work out, take care of your body, and nourish it with healthy food. As well as learn to recognize, accept, and control your emotions and restrain yourself in stressful situations. Your new trading career will have a much higher probability of becoming successful.


Of course, that’s not to say these changes alone can guarantee success but they will surely help to gain the right mindset and we cannot stress enough the importance of that. 

 

Day Trading is a serious professional career worthy of respect and one that requires diligence, patience, self-control, and an incredible ability to manage one’s emotions and stress levels long before needing to manage any trading risk.

Why Day Trading? What are the advantages?

From a day trader’s perspective, day trading presents many advantages. 

 

One of the main advantages of day trading is that the feedback on your trading performance is immediate, compared to other trading methods.


Another is the ability to close your position at or before the end of the trading day; this way the trader is not left with open positions at night and he’s not exposed to changes beyond his control.

 

Another reason is that day traders can be profitable and make good money whether prices go up or go down as they can trade the direction of the market on any given day. Not bad, huh?


If the market trend is up on a given day, for example, they will trade more longs and if the market trades down they will trade more shorts.

 

Furthermore, Day Trading also offers a steeper learning curve, as it gives constant daily feedback, compared to long-term investments (whose results can only be obtained, at best, a year ahead of the initial investment).

 

The amount of opportunities in day trading is much larger than that in swing trading or long-term investments. 

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Supply, demand and price

It’s often said that in a free market price is set by and dependent on supply and demand, but what does that mean?

Put simply, it means that price is the direct result of the interaction and dealing between buyers and sellers. When entering the market, sellers will demand the lowest price they are willing to accept to sell a certain security. Buyers, on the other hand, will enter the market offering the highest price they are willing to pay to buy it. Price is therefore determined by the “agreed meeting point” between buyers and sellers.

“Well then”, you might ask, “who are all these buyers and sellers? Who actually are the players in financial markets?”

Let’s take a look. 

Market players: Retail and Institution

‘Retail traders’ is the term that refers to individual traders, who buy or sell securities for their own personal accounts may that be from an office or from their home.

 

One of the advantages of being a retail trader is that you can trade what you want, how you want and as much as you want without anyone telling you what to do with your positions.
Decisions and choices are all on you, buddy!

Normally, retail traders have a much smaller amount of trading dollars in their accounts. The positions they open are much smaller and this presents another “advantage”: they are much less likely to affect the price of a security for lack of sufficient capital in their account. In other words, they couldn’t even if they wanted to.

 

However, many retail traders have common problems too; primarily misconceptions and lack of discipline.
It’s way too easy for beginners to enter into a storm of emotions, which is often accompanied by breaking the rules of their own trading plan, overtrading, losing control of their positions and a lack of ability to realize profits. They tend to get overly greedy and not close positions when the price reaches the profit target or they remain stuck in losing trades like flies on poop not being able to recognize and accept a loss.

 

‘Institutional traders’, on the other hand, buy and sell stocks for accounts they manage for a group or an institution.

There are several types of securities (such as forwards, swaps, etc.) that might not be available to retail traders simply because such tradeable items require huge funding and are mostly successful in long-term investments. 

 

Because of the large volume, institutional traders can greatly influence the share price.

Sometimes they may split trades between different brokers or execute them over a longer period of time so as not to affect the price and thus their flexibility to exit and enter the market remains much more limited than that of retail traders.

Part of the payoff that Institutional traders enjoy, however, is the discount they receive on due commissions, priority trading and other benefits offered to them because of the sheer size of their capital and their investments.

Keep in mind: Something important to know is that institutional traders have limited involvement when it comes to investing in small-cap stocks (stocks with a market cap below $2 billion).

U.S. Market vs. Other Markets

The U.S. stock market is the largest in the world and continues to be the deepest, most liquid and most efficient of all other markets with nearly 6,000 companies trading on the NYSE and NASDAQ exchanges alone.

 

The US has one of the most diversified markets in the world. The top sectors, Technology and Financials, only make up 34% of the overall market. 

 

The US stock market is host to a variety of promising companies to choose from and is one of the most stable markets when it comes to trading.

 

Investing in US stock will allow you to get access to some of the best global companies such as Facebook, Apple, Google, Amazon, and various others.

 

The U.S. stock market is where everybody is and it’s where the money is at. It’s a no-brainer, if you ask us.

Merry Xmass. Happy New 2024 Year