Day Trading: What It Is And How To Start

While day trading can be highly lucrative, it can also lead to significant monetary losses. Individuals who want to start day trading should make sure they understand the risks involved. 

Over the last few years, it has become easier for people from all walks of life to trade stocks in the stock market. Some casual traders open a regular brokerage account to supplement their retirement savings. Other everyday investors use roboapps which automatically move funds from a bank account into a brokerage account for investment in mutual funds and other equities. 

For some people, casual stock trading isn’t enough. Specific medium and high-net-worth individuals trade stocks continuously throughout the business day. These individuals tend to be educated professionals with access to specific stock trading applications and a high degree of specialized knowledge. They also have access to funds to cover stock trades. 

Day trading is not for amateurs or casual investors. Day trading is a volatile and high-risk activity that demands adequate funds and a high risk and volatility threshold. While day trading can be highly lucrative, it can also lead to significant monetary losses. Individuals who want to start day trading should make sure they understand the risks involved. 

Day Trading Explained 

Day trading refers to the act of buying and selling stocks continuously over a single trading day. Day traders must continually monitor stock exchanges in Canada and elsewhere to observe fluctuations in stock prices. Day traders stick to liquid assets such as stocks that can be bought or liquidated quickly. The underlying logic of “buy low and sell high” guides the day trading. 

Stocks are bought and sold in volume, meaning traders buy and sell stocks and other liquid assets in batches of hundreds or thousands of shares at a time. The underlying goal of all this trading is to buy a particular stock, hold it for as brief a time as possible, and then sell it at a profit before the close of the trading day. 

Day traders who sell all of their stocks and equities at a higher price by the close of the trading day make a considerable profit, often into the tens and hundreds of thousands of dollars. Day traders who are left holding losing stocks or equities at the trading day’s close take equally considerable losses. 

Day Trading Is A High-Stress, High-Stakes Game

It’s not uncommon for more seasoned day traders to see fortunes fluctuate wildly over a week, or even just a few days. It’s also not unusual to see some day traders make thousands of dollars one day and then lose every penny the next day. A fair number of day traders lose everything they have and end up in severe debt. 

Get Started In Day Trading

If you have the funds and some concept of the knowledge required and the risks involved with day trading, we’ve put together this informal step-by-step guide to guide our readers through the process of learning the market, finding the right broker, and making trades. The information in this article is not a substitute for proper research and due diligence. 

Study The Market 

If you’re going to get started in day trading, you need to have a deep and detailed knowledge of how stock markets work, not just in Canada but globally. You need to know all the different types of equities, bonds, and other financial instruments, as well as the laws and financial regulations that govern them.  

Beyond institutional and financial knowledge, you’ll need a certain amount of expertise in other areas as well, including some that might not seem to be related to the stock market. You’ll need to keep track of current events and understand how disparate phenomena such as wars, natural disasters, and political instability affect the markets. 

You’ll also need detailed knowledge of how different sectors of the global economy work; you’ll need to start monitoring the Bank of Canada to monitor interest rate changes. You’ll want to keep track of what CEOs in Canada and abroad are doing and saying, so you can consider all potential impacts to your portfolio. 

Formulate A Strategy

There are several different strategies for day trading, which we’ll cover in a little more detail later on in this article. When you’re just starting, take some time to read about these different strategies. You might like a strategy referred to as “trend following,” or you might prefer “range trading.” 

There are countless books, podcasts, webinars, and blogs devoted to day trading intricacies; pick a few and devour all the information they have to give. Devote time to studying actual trades and then ask yourself: 

  • How would you have executed the trade? 
  • What would you have done differently? 
  • What’s your risk tolerance
  • When do you sell? 

Trade With A Demo Account

After you’ve got a handle on strategy, it’s time to get closer to trading actual money by setting up a demo account that will simulate the process of day trading with the ability to simulate buying and selling during the trading day in real-time in response to real events. FOREX is the most popular option for demo accounts. 

This is a crucial step because once you’ve set up your demo account, you’ll put your strategies into practice to see how they unfold in the real world even though there’s no actual money at risk. Now is your opportunity to practice and refine your strategy before you start trading with real money. Keep refining and developing your strategy until you feel confident in your abilities. 

Set Realistic Goals

As we’ve stated repeatedly throughout this article, day trading is a high-risk activity. No matter how refined a particular theory of day trading looks, it’s pure speculation, and some traders would call it an educated guess. Day traders need to have a clear idea of their threshold for market volatility and the dollar amount they can afford to lose. 

You can’t expect to make a profit at day trading by simply checking in on the stock market every couple of hours while you’re at work. If you want to succeed at day trading, you can’t uphold a day job. When the market’s open, you’re at your computer watching the numbers, buying and selling. Day trading should not be confused with a side hustle.  

You have to learn to manage your emotions when the market is high and when the market is low. When you start trading with actual money, make sure you understand the procedures required to execute, buy, and sell orders. There’s nothing worse than losing a few thousand dollars because you didn’t execute a sell order in time. 

Expect The Unexpected

When you’re trying to get a sense of your long-term goals with day trading, remember that all strategies are pure speculation. There will be times when no amount of prior knowledge or preparation will prepare you for the dreaded “black swan” event. This unforeseen event sends markets into a tailspin and cuts into every trader’s margins. 

If you’re a day trader, there’s going to come a time (probably much sooner than you think) when an utterly unforeseen event blows all of your tested strategies out of the water and costs you a fortune. We can’t stress this enough, but day traders must know their tolerance for risk and loss to profit over the long term. 

Know The Tax Implications

Once you’ve formulated a strategy and spent time making simulated trades with a demo account, you’re ready to start trading with real money. Meet with a qualified financial advisor, inform them that you’re going to start day trading, and then work together to get a sense of the tax implications for your entire financial portfolio. 

Depending on the jurisdiction, the tax implications that come with full-time day trading are complicated, particularly if you’re an “investor” or a “trader” under Canadian law. There may be other regulations to consider, such as the length of time allowed between stock trades, as well as annual capital gains and losses. 

Don’t start day trading with your own hard-earned money until you’ve met with a qualified financial advisor who can clearly explain the implications for your portfolio. Financial regulations regarding day trading are complex, and there can be substantial hidden costs; selling those unrealized gains might seem like a good idea right now, but wait until you get the tax bill later on.

Find A Broker You Can Trust

Now that you’re day trading for real, it’s time to find the right broker. All-day trades occur through an investment platform where stocks and other equities such as bonds are bought and sold. Your broker is going to be the one in charge of moving your money from one place to another; make sure you trust your broker, their timing, and their investment platform. 

Choosing The Right Broker For Day Trading 

Finding the right broker is a topic that merits an entire blog post of its own. Choosing a broker is a consequential and deeply personal decision that will profoundly impact your performance as a day trader. When you’re looking for a broker, try to choose one whose personality and expertise complement your own, and keep these basic principles in mind. 

Area Of Expertise

You’ll want to find a broker with the right area of expertise and understand that different brokers specialize in different kinds of trades. So when you’re choosing a broker, find one who specializes in trading the stocks and equities you plan to trade. Do you plan to focus on small-cap stocks? Commodities? Derivatives? Find a trader who knows your area of the market.

Ask For Recommendations 

Now’s the time to reach out to your personal and professional networks to get a few names. At this point, you should have already worked with more than a few other day traders before getting started. If you want to find an excellent broker to facilitate your trades, it’s common sense to talk to a few additional day traders in addition to your contacts. 

Look Online For Reviews 

Once you’ve narrowed it down to a few names, it’s a good idea to go online and see what current and former clients say about a particular broker. Keep an eye out for negative reviews or anything else that might hint at past illegal or unethical behaviour. Check with all relevant provincial and federal regulators to check for past abuses or disciplinary actions. 

Research Fees And Commissions

There’s nothing more annoying for an investor than any discussion about fees, but fees and commissions are an essential factor to consider when you’re on the hunt for the right broker. Remember that you’re going to be selling hundreds and thousands of shares at a time and that these transactions can generate fees and commissions that are considerable. 

Nothing chips away at a portfolio faster than a never-ending barrage of fees and commissions. Before choosing a broker, make sure you go over their fee structure and applicable commissions with a fine-tooth comb, so you know what daily costs you’re going to incur as you’re buying and selling stocks. 

Research Your Broker’s Trading Platform

After you’ve narrowed your list of potential brokers down to a few names, take some time to research and use their trading platform. Remember that in day trading, volatility is the name of the game. Does your broker’s platform give you the tools you need to make calculated decisions at a moment’s notice? Will it execute, buy, and sell orders reliably and quickly? 

Investigate Customer Service Options

Besides the actual user experience of using a broker’s platform, take some time to research the scope of a prospective broker’s customer service options. What kinds of tools and intelligence resources do they provide for traders? Is the customer service team an intermediary that handles trades, or do they provide real and robust support for a good trading experience? 

Do they have a record of missed or incorrectly placed trades? In a dispute, what are their resolution protocols, and are they being spelled out clearly before forming any genuine ongoing financial partnership? Before choosing a broker, please take a good look at their customer service team to ensure you know the scope of service they provide during trading.

Find The Right Day Trading Strategy

Now, as we mentioned briefly earlier in the article, there are several different day-trading strategies. While it would be beyond the scope of what we’re doing here to choose one strategy as the most profitable, day traders need to know that these strategies are nothing more than speculation. Any trading strategy will incur some financial loss. 

Technical Analysis

A technical analysis trading strategy is the idea that stocks move up and down in trends set in motion by many factors. Day traders focused on technical analysis make decisions to buy and sell based on perceived market trends. 

Chart Patterns

For decisions based on chart patterns, traders decide to buy and sell according to the shapes and visual representations representing data and information in graphical forms as day traders receive data and then decide to buy or sell stocks. 

News Trading 

This is the most common day trading strategy still in use. Many day traders monitor live news feeds from several different networks alongside stock metrics and other financial data. They then use the combined information from both sources to make decisions about stock trades. 

With this approach, a day trader might see that Mark Zuckerberg is in legal trouble in the EU and then use that information to decide to sell their Facebook shares. 


With this approach, day traders learn to buy and sell over tiny price fluctuations. This form of trading occurs over many short cycles, dozens or hundreds of times over the trading day. Traders who rely on scalping aim to build profit by making several small profits throughout the day. 

Price Action

This is a highly technical and data-driven approach in which traders decide to buy or sell based on their recent price history.

Range Trading 

With range trading, day traders focus on the metrics of volume and price. Traders use this information to predict how a stock’s price will move throughout the day. Based on this prediction, traders buy low and sell high. 

Trend Following

This is a simple approach where traders buy a stock when its trend price goes up and sell a stock when its trend price goes down. 

Contrarian Investing

This approach works just as its name implies. Contrarian day traders buy and sell stocks contrary to the prevailing sentiment of the time. The idea here is that group-think can sometimes inflate stock prices.  

Know The Types Of Orders For Stock Trades

When you’re a day trader, you’re buying and selling stocks based on a personal investing strategy. The act of day trading involves buying and selling stocks, which are called orders. When you’re trading stocks, there are three primary types of orders, and it’s essential to understand what they mean and how they work before you start trading. 

Market Order 

This is the most common type of order in day trading. When you place a market order, you’re acting through a broker to buy or sell a specific security at the best possible price. 

Limit Order

With a limit order, you’re acting through a broker to either buy or sell specific security once it reaches a particular price or better. With a “buy limit” stop order, day traders execute buy orders at a set price or lower. With a “sell limit” order, day traders run sell orders at a fixed price or higher. 

Stop Order

This kind of order is also known as a stop-loss order. This is to buy or sell given security once the price has dropped to a set price, called a stop price. When the security hits its stop price, it converts to a market order. 

The Costs Required For Day Trading 

Whenever we talk to investors who think they can make a profit day trading, one of the first questions we hear is, “Well, how much does it cost to start day trading?”. Prospective day traders know that day trading full-time requires a substantial amount of start-up capital. You’ve got to have enough of a cushion to withstand volatility and swings in the market. 

You need to make sure you’ve got enough money to cover all your fees and commissions, and your accountant will be working more, so you need to figure that in too. You’re also going to need enough money to cover your mortgage payment, bills, credit card debt, and all of your other living expenses. Life doesn’t stop when the trading day is over. 

Also, keep in mind that in many jurisdictions, day traders must have a minimum amount of cash on hand when the trading day starts. There is no set minimum of money on hand required to day trade in Canada. Keep in mind there are different caps, daily cash minimums, and regulations for different securities types. 

Start Day Trading Only If You Understand The Risk Involved

We’ve spilled a great deal of ink writing this article and talking about risk. We’ve said it before, and we’re going to say it one last time. Day trading is a high-risk activity that requires a substantial amount of capital and a high degree of specialized knowledge across a broad range of disparate subjects. Make sure you have adequate funds and expertise before day trading. 

Low-Risk Alternatives To Day Trading

We know by now that quite a few of our readers out there have decided that day trading is not for them, and that’s the way that it should be. But if you want to start investing, you can get started right away, and there are numerous lower-risk brokerage accounts and other low-risk financial instruments to help add value to your portfolio. 

If you want a simple, no-fuss approach to investing that does all of the heavy lifting for you, try a robot-investing app such as Moka. With Moka, you open an account and answer a few demographic questions, and then Moka lets you choose an investment strategy from a range of options. 

After that, you link your bank account to the app, and Moka automatically transfers a set amount of money from your bank account to a brokerage account on a daily, weekly, or monthly basis. Another option is to open a brokerage account with a bank or brokerage firm and start investing under a qualified professional’s guidance.  

There are several less risky alternatives if you don’t have the resources and expertise for day trading.

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