What is day trading?
Learn what day trading is, how a trade works, and try one for yourself.
What makes it a day trade?
Day trading means opening and closing a position within the same trading day. A position is simply a trade you currently have open.
Let’s say you open a trade at 9:35 AM and close it at 9:50 AM. Because you opened and closed it during the same trading day, that’s a day trade.
Day traders look for opportunities in shorter-term price moves. A trade can make money or lose money depending on how price moves after it’s opened.
How does day trading work?
So, what does taking a day trade actually look like?
First, a trader watches the market and looks for an opportunity. When they find one, they make a plan: where to enter the trade, where to exit if it moves against them, and where they may take profit.
They then place an order to open the position. As price moves, the trade will show a profit or loss. The trader watches the position and eventually closes it, completing the trade.
Afterward, they can review the trade and ask: Did I follow my plan? What can I learn from it?
Why does price move?
Price moves because of buying and selling activity in the market. The movement we see on a chart is called price action.
When buyers are more aggressive, they can push price higher. When sellers are more aggressive, they can push price lower.
As traders, we study price action to help us understand which side is in control and which side is more aggressive.
Who participates in the market?
People and businesses trade for different reasons. Some are looking for a price move; others use the market to manage risk.
Retail traders
Retail traders are individual traders like us. We look for opportunities in price movements and make our own trading decisions. Smaller positions can give us more flexibility to enter and exit trades.
Institutions
Institutions include banks, hedge funds, and investment firms. They may trade to manage risk, invest, or place orders for their clients. They can also trade much larger positions than individual traders. More capital, research, and technology give them access to resources most individual traders don’t have.
Algorithms
Computer programs that execute trades automatically with speed and precision. Both institutions and individual traders can use them.
Buying and selling
Day traders can trade price moves in either direction: buying or selling.
Buying · Going long
You buy first, then sell to close. If price is higher when you close, the trade makes money. If it’s lower, the trade loses money.
Buy first → sell to closeSelling · Going short
You sell first, then buy to close. If price is lower when you close, the trade makes money. If it’s higher, the trade loses money.
Sell first → buy to closeFor futures, going short means selling a contract to open a position. We’ll explain how contracts work in the futures lesson.
Try a trade.
Choose Buy or Sell, play the chart, then use the opposite button to close your trade.
Simulated NQ replay · 1 MNQ ($2/point) · Candle movement approximated · Fees excluded
How do you learn to trade?
Learning to trade takes time. The goal is to understand what you’re trading, learn how to read the market, and practice making decisions.
Learn the basics
Start with how futures contracts work, how to read a chart, and how to execute setups.
Learn a strategy
Learn what you’re looking for before entering a trade, where you’ll exit if you’re wrong, and how you’ll manage the position.
Practice and review
Use a simulator to practice, then review your trades and look for what you can improve.
Losses are part of trading. Practicing in a simulator helps, but trading with real money can feel different.
In the next lesson, we’ll talk about psychology and how emotions can affect your decisions.
Check your understanding
Which example is a day trade?
Lesson complete ✓
You’ve finished the introduction to day trading.