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Day Trading Fundamentals

Oct 2, 2025

Overview

This lecture covers the fundamentals of day trading, including platform selection, technical analysis, risk management, stock selection, trading plans, and key tax strategies. By the end, you'll have a step-by-step strategy suitable for beginners to practice in a simulated environment before using real money.

Getting Started & Simulated Trading

  • Begin trading by practicing in a stock market simulator to avoid risking real money.
  • Choose a reliable platform that supports simulated trading, fast execution, hotkeys, and full market data (e.g., WeBull, ThinkorSwim, Warrior Trading Sim).
  • Start with a small account to manage emotions and gradually build up as your track record improves.

Technical Analysis & Chart Basics

  • Technical analysis involves reading candlestick charts to interpret market trends and signals.
  • Key indicators: Moving averages (9, 20, 200 EMA), VWAP (volume weighted average price), MACD (momentum), and volume bars.
  • Important candlestick patterns: dogees, gravestone/dragonfly dogees, hammers, and shooting stars signal trend reversals or continuations.

Stock Selection & Scanners

  • Use stock scanners to find momentum stocks: criteria include price between $2-$20, news catalysts, high relative volume (5x+), and low float (shares available for trading).
  • Focus on stocks that are top gainers and have obvious demand-driven movements.

Risk Management & Mindset

  • Always define your exit price (max loss) before entering a trade; aim for a minimum 2:1 reward-to-risk ratio.
  • Keep losses small and let winners run while cutting losers quickly.
  • Avoid trading emotional spirals by sticking to your plan and reducing size or using simulation if you falter.

The Core Trading Strategy

  • Trade the micro pullback pattern: Enter when the first candle makes a new high after a pullback on a strong, high-volume stock.
  • Use technical and volume indicators for confirmation; both must signal positively before taking a trade.
  • Limit initial trades to 1-2 pullbacks per stock and avoid later-stage entries to minimize risk.

Trading Plan & Progression

  • Create a written trading plan covering your strategy, stock criteria, trading hours, and daily risk/profit targets.
  • Follow a three-phase progression: (1) gain experience in sim, (2) prove consistency with one trade/day for 10 days in sim, (3) repeat with real money and gradually scale up.

Order Execution & Market Mechanics

  • Use limit orders (not market orders) for better control, especially pre-market and after hours.
  • Leverage hotkeys for fast order entry and exit.
  • Understand level 2 market data and time & sales for insight into order flow and large buyers/sellers.
  • Be aware of market hours, circuit breaker halts, and how auctions set prices after halts.

Tax Strategies & Legal Structure

  • Consider tax-efficient strategies: trade in a Roth IRA for tax-free growth or move to Puerto Rico for zero capital gains (Act 60).
  • Use trader tax status and mark-to-market accounting to maximize deductions and reduce wash sale issues.
  • For advanced traders, incorporate as a business (LLC/S-corp) for further tax advantages and retirement contributions.

Common Pitfalls & Discipline

  • Most beginners fail by not having a clear strategy or lacking discipline to follow their plan.
  • Use journaling and self-reflection to identify emotional triggers and areas to improve discipline.
  • Implement strict guardrails (max daily losses, number of trades, etc.) especially when transitioning to real money.

Key Terms & Definitions

  • Candlestick Chart — Visual representation of price action for a set time interval.
  • MACD (Moving Average Convergence Divergence) — Momentum indicator showing trend direction and reversals.
  • VWAP (Volume Weighted Average Price) — Average price of a stock weighted by volume.
  • Float — Number of shares available for public trading.
  • Limit Order — Order to buy/sell stock at a specified price or better.
  • Hotkeys — Keyboard shortcuts for rapid trading order execution.
  • Circuit Breaker Halt — Regulatory pause in trading due to extreme volatility.
  • Mark-to-Market Accounting — Tax method allowing all trading losses to offset income in the same year.

Action Items / Next Steps

  • Download and print the provided PDFs: Small Account Worksheet and Trading Plan.
  • Set up a simulated account on your chosen platform and practice the micro pullback strategy.
  • Track your metrics (profit/loss, win rate, avg. winners/losers) for at least 10 trades before using real money.
  • Study candlestick patterns and practice technical analysis on sample charts.
  • Review and refine your trading plan as you gain experience.

Full transcript