Advanced Techniques: How to Day Trade Like A Pro
Updated: Feb 26
Stock trading is a fascinating and rewarding activity that can yield significant profits for those who take the time to learn and practice. While many people start trading stocks with basic knowledge and tools, those who are serious about success in the stock market must continue to improve their skills and develop advanced techniques. In this blog post, we will explore some of the most effective advanced trading techniques that can help you take your stock trading to the next level.
If you haven't done so already, be sure to check out: Day Trading for Beginners: Fast Track to Financial Freedom!
Level II Data
Having the right information will make all the difference when you start investing seriously. Level 2 market data is a type of financial data that provides detailed information about a stock or security's trading activity. Level 1 data provides only basic information about the current bid and ask prices, as well as the last traded price. Level 2 data, on the other hand, provides real-time updates on the bids and asks for a particular security, as well as the current market depth.
Market depth refers to the volume of orders at different price levels for a security. Level 2 data provides this information in real-time, allowing traders and investors to see the total number of shares available at different price levels and the number of buyers and sellers in the market. This information can be useful for making informed trading decisions, such as when to buy or sell a particular security.
Buying the Right Way
One thing you are going to want to avoid is allowing your broker to set your purchase price. This means if you are just selecting an amount of shares and clicking purchase, you are doing it wrong.
I repeat, do NOT allow your broker to select the purchase price.
Set your price with a Limit Order
A Limit Order allows you to set the maximum price you are willing to pay for a stock. Let me explain why this is so important. When you see the current price of the stock, that does not mean there are an infinite number of shares for sale at that price. There might only be 1. This is a big problem if you just said you wanted to buy 1,000 or even just 100 shares of a stock. Let's compare two scenarios.
Scenario 1:
You found a stock and are ready to buy in. You have $500 to spend and the stock price is $5. You decide to let the broker set your price, so you enter a purchase of 100 shares and click buy. A short while later you notice you do not have 100 shares. What happened?
When you purchased your stock, the market had a short, small surge in price. Your broker paid the current market price to buy as many shares as you could afford, up to 100. Since the price jumped, you paid an average of $5.20 per share. After the blip, the price is now at $5.10, and you have started out at a loss even though the price is higher than when you hit buy. Thankfully, it continues to rise and settles at $5.20 for the day. You close out ready to try again later.
Scenario 2:
You found a stock and you are ready to buy. You start with $500, and the stock price is $5. You decide to set a Limit Order to buy 100 shares at the price of $5 or lower. There is a quick surge in the stock followed by a quick dip. You ended up paying an average of $4.95 on your stocks. This means you now have 100 stocks and a little money left over. After the quick dip, the price settles at $5.20 and you sell. Since you bought 100 shares, this minor difference made you $15. That seems insignificant until you realize it is a 3% gain.
Let's take a look at how much a 3% trade could make you.
Initial Investment | 3% (Daily Income) | Total Earned In 1 Year* |
|---|---|---|
$500 | $15 | $3750 |
$10,000 | $300 | $75,000 |
$25,000 | $750 | $187,500 |
*This representation assumes you are using a fully funded day trading account and catching every trading day (250) this year. It also assumes you are keeping the profits. Rolling your profits back in will generate a much larger annual income.
Selling the Right Way
Much like buying a stock, you do NOT want your broker to choose the sell price of your stock. There is always a lot happening during the trading day and you could be making a huge mistake if you are not setting a Limit Order. A Limit order allows you to sell your stock at a minimum price or higher. Doing this correctly will make a huge difference on your returns so don't get lazy with your trades!
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Day Trading Without $25k
A full-blown day trading account requires a minimum of $25,000. For some people that is going to take a while to save up. The good news is you can start to get your feet wet before reaching $25k. You are allowed to make 3-day trades per 5 business days without being flagged as a day trader. If you get flagged, you will be unable to day trade for 90 days. You don't want that! Here is what a 3% return could look like while you save up enough money to have a full-blown day trading account.
Initial Investment | 3% Daily Income | Total Earned In 1 Year* |
|---|---|---|
​$500 | $15 | $2250 |
$1000 | $30 | $4500 |
$4500 | $135 | ​$20,250 |
*This representation assumes you are catching every allowable trading day (150) this year and keeping the profits. If you roll your profits back in, your profits will be much greater.
Now that you have seen the numbers you may realize that getting to $100k doesn't have to be all that difficult. It will take some practice to figure out when to buy and sell. Don't get discouraged by one bad trade. Learn from it and see what went wrong. Ensure you follow all your trading rules and begin looking for a new opportunity. Before you know it, you will be wondering why you didn't start sooner.
After a great year of investing, it's important to remember that you need to pay taxes on this money. Your broker will prepare a document for you to use, and it is very easy.
Now that you are investing like a pro, you can afford to take a vacation paid for by money you didn't earn working a 9-5. If you need ideas, inspiration, or travel tips, check out our friends over at The Adventures of Bigfoot.
Keep Learning:
Continue to sharpen your mind by checking out our reading list! This list features a variety of topics for all knowledge levels. Pick something that interests you and have fun with it. Whether you prefer to open a hard copy by the lake or listen to an audio book on the way to work; our list will provide you with the options that work best for you!
