THE BLOG
07/09/2015 04:59 pm ET Updated Jul 09, 2016

Creating a 'Freedom Lifestyle' Through Day Trading

Whether your goal is to have the ability to move or travel at will, work from home or have to have more money to do more of the activities you enjoy, day trading can provide a way.

There are a lot of misconceptions about day trading, which lead people to think it is risky, takes up too much time or that retails traders can't succeed. Often, it is all the false information which leads potential traders astray or deters them from learning from how to day trade properly. First we'll address some common misconceptions about day trading, and then look at the five steps we teach our traders so they can create their freedom lifestyle though day trading.

Day Trading Misconceptions

Most people think that day trading involves sitting in front of charts and watching CNBC all day to stay apprised of the latest market happenings. Unfortunately, even many experienced traders do this, but it isn't required. It's inefficient.

Most successful traders don't spend all day in front of a computer, normally an hour or two. Some trade a bit longer or most of the day, but not because they have to or feel they need to. They simply like to trade and are willing to spend multiple hours doing it. To make a living though, one to two hours a day is all that's needed. This allows them to travel and trade, or do more of the other activities they enjoy.

Many of our traders only day trade one financial product -- the E-mini S&P 500. Watching CNBC won't improve your trading, and may actually distract you from focusing on what really matters: price action. All our traders learn how to day trade using price action. We'll discuss that in a moment.

So day trading doesn't involve constantly watching the news or loads of homework each night. Focus on one market and learn to trade that single chart well. Drop the constant research. We like the E-mini S&P 500 contracts; Cory Mitchell, of VantagePointTrading.com focuses on day trading forex, mainly the EURUSD, or take the traders from SureTrader and their top stock alerts, they focus mainly on stocks.

No matter your market, trade it every day based on a reliable, tested and practiced method, instead of following news hype or reporters on TV who have no interest in whether you succeed or not.

We teach our traders to look for specific trade setups, and they become experts at identifying those trade setups and trading them, no matter what the market conditions are like. That means they can trade that one financial instrument every single day whether the market is volatile or quiet, or the market is trending or ranging.

Pay checks are made monthly no matter whether the market goes up, down or barely moves.

Five Steps to Creating Your Freedom Lifestyle Through Day Trading

We won't tell you day trading is easy; to succeed takes practice. If you learn a good strategy though and learn to implement it for yourself, you improve and create an income quite quickly. Danyel, highlighted on About.com because of his success, is a newer trader well on his way to becoming a Master Trader. He went live (started trading real money) in March and produced a 38.75 percent return in his first 10 days, with no losing days. You can see his full story on the Day Trading Academy YouTube channel.

He only trades 15 to 45 minutes a day.

We're confident Danyel will continue to do well (and he has) because he has gone through the proper steps for building consistency. The following steps help summarize what traders need to know about learning how to day trade.

Step 1: Learn About Your Market:

You can't know what you don't know. As mentioned we like day trading the E-mini S&P 500 futures contracts. While most new traders may not know what a futures contract is, this product is one of the easiest to trade, and is traded by day traders all over the world as it is very liquid and provides a great opportunity for building a consistent income. Most of our traders trade it near the U.S. market open, for one to two hours.

The capital requirements for day trading this contract are also quite low. Traders can start trading with an absolute minimum of $1000, or more. Day trading stocks requires a minimum $25,000 initial investment.

Step 2: Price Movement Basics and Indicators

The best day traders read price action well, and adapt to changing market conditions. This is the next step in creating a freedom lifestyle. Our traders are able to spot trends and isolate pullbacks (a counter-trend move) within that trend. They are taught to notice weakness in the trend, which could result in a reversal.

We do use a few indicators and they help new traders spot the trend easier and also spot potential warning signs for a reversal. More experienced traders will often focus more on the price action though, and may not even use the indicators.

The main goal of learning price action trading is to get you reading the market and forming proper expectations about what it could do. In this way, you aren't reliant or indicators or other people's opinions for finding trades.

All learning and practicing takes place within a demo/simulation trading account (no real money on the line). This allows you to learn what you need to without the added pressure of losing real money. When you are ready, only then will you trade real capital (step 5).

Step 3: Trade Setups

This is the part most uneducated traders skip to right away. They want a strategy, failing to realize that they need to learn how to read price action first (step 2). Once you know how to read price action you are in a better position to learn a strategy and trade the setups it provides. As discussed above, our traders learn to spot trends and pullbacks within those trends. This provides a trade setup that they watch for, which repeats every day, multiple times per day.

They also learn warning signs that a trend might reverse, and thus don't trade all setups because some are more likely to result in losing trades. Successful traders don't blindly follow trade signals. They learn a few trade setups and use price action to help isolate only the most high probability setups. Those are the setups that are traded.

Only trades with a positive expectancy are taken. That means that's very likely we will make more on a winning trade than we will lose on a losing trade. This is easily accomplished through the use of target prices and stop loss orders. The former gets us out at a profit if the price does as anticipated. The stop loss on the other hands keeps our risk on losers small (no trader wins all the time).

Step 4: Practice the Basics

Practice is an overlooked aspect of trading. In every other field professionals practice, why not day trading? If you want to succeed, you need to practice. Several months of practice spotting trade setups and establishing your profitability is recommended.

We recommend traders first implement the simplest approach to a strategy, which is allowing the price to hit the stop loss or profit target, with no personal intervention. This builds discipline and forces the trader to watch how the market moves once they are in a trade. Once that approach is successful the trader can allow themselves a bit more flexibility. If they notice the price is indicating a reversal while they are in a trade, they can exit before the stop loss is reached, thus reducing the potential. If the price is really moving in their direction, they expand their profit target to participate in a larger gain. Successful traders practice adapting to changing market conditions, in real time, before going live.

The practice and learning stage can take can take as little as a month if you pour lots of time into it. For most new traders it could take up to six months time to become a successful trader. In order to quit your job to day trade, plan for a bit longer so you have time to build your trading income.

Step 5: Going Live

This is the final step, and where your freedom style begins. The actual work took place before this though, in the steps above. The practice is what allows you create profitability. Once you go live (trading real money) your goal is to simply repeat what you have already proven you are capable of doing in the demo account. Since trading real money can raise some fear and greed issues, trading psychology issues are also dealt with at this stage so the trader is able to do what they have practiced.

Last Words

Once you know how to day trade, it doesn't need to take up a lot of time. I have been able to make a living day trading for 13 years and have had the pleasure of traveling around the world for over six years. Anyone can learn to do it, assuming they are willing to learn how to read price and learn a viable strategy. Practice is the most important ingredient, as it is through practice that a trader will develop consistency in producing profits. Practice is initially done in a demo account, so no money is lost during the learning phase. Only once the trader is confident and has proven they can consistently produce profits in a demo account do they go live. That's when you begin trading with real capital, producing your freedom lifestyle.