The stock market rises and falls. It is rare that the market closes unchanged from where it was yesterday. A position of long or short, if held after the close, would sustain either unrealized gains or losses. Volatility is part of the risk and reward in stock trading. Although it is impossible to predict stock prices with certainly, you can sometimes anticipate the direction of a stock for a certain length of time. Knowing how a stock is trending makes it possible to make money daily in the stock market, even with little capital.
Understand market volatility. The market as a whole, as well as many individual stocks, can fluctuate between 1 and 3 percent from previous day's close on many trading days. For a stock priced at $30, that would represent a change in value of $0.30 to $0.90 per share. Potential profit will depend on the total number of shares you wish to trade and your timing in getting in and out of the position.
Decide on the amount of trading capital you can commit. Buying shares in the stock market is affordable to everyone. You can buy as few as 10 or 20 shares, which may cost you only a few hundred dollars. Suppose you can commit $3,000 in capital, which would buy you 100 shares of a $30 stock. In the meanwhile, your profit target would be around $30 to $90 per trade per day.
Research a group of potential stocks for trading. Stocks do not rise and fall all at the same time and daily trading involves trading many different stocks. Trading daily requires not only the fine skills of technical analysis but also a broad knowledge about industries and sectors. Moreover, information about specific companies and the understanding of various economic data in general affect trading results as well.
Adopt a trading strategy. Two contrasting strategies are momentum trading and contrary trading. Momentum traders believe that what is rising or falling may well continue that trend. Contrarians believe that an apparent trend may soon reverse. Investopedia refers to momentum trading as looking for stocks moving in one direction on high volume. Contrary trading also concerns stocks in a directional course but on low volume. Both strategies may prove to be valid only if confirmed by the convergence or divergence between trading volume and price.
Take the profit or cut the loss. Discipline in trading is the willingness to overcome greed and fear. Always take the profit or cut the loss as planned, unless you have decided as an alternative to hold a position longer if a trade prediction was wrong. But any uncleared position ties up the capital and should be avoided when the total amount of capital is limited.
The use of momentum and contrary strategy is the practice of "buy high and sell higher" and "buy low and sell high." Choosing which strategy seems to be a matter of traders' preference and style, but also involves risk tolerance and holding time. While contrary trading is thought as having longer wait time, momentum trading is perceived as having higher risk, according to professor Aswath Damodaran of the Stern School of Business at New York University.
Few individual investors have the capital, resources and information needed to day-trade successfully. The market and individual stocks can turn on a dime, and the profit made in several days trading can be wiped out in one.
Every stock trade has a commission. So frequent trading can quickly cut into your capital. Also, gains will be taxed as short-term if you are trading daily. And the amount of losses you can deduct from your taxable income each year is limited.
Remember that a stock trade takes three business days to settle. In a cash account, any funds from a stock sale will not be available for use to complete another trade before the funds are settled. However, you can use unsettled funds to buy new shares but cannot sell them before last trade's settlement date. Additional capital may be needed in order to trade daily.
If you have signed onto a margin account, which requires a minimum deposit of $2,000 based on the FINRA (Financial Industry Regulatory Authority) margin rules, you are allowed to have three day trades every five business days. Day trading is not subject to funds settlement rules and you can use any unsettled sale proceeds for another trade.