The Stock Market & Day Trading Explained
Today we are going to cover what the heck even is the stock market and day trading! Unless you are a trader or have been exposed to this world in another way from a personal source, it’s probably foreign to you! Neither of us mamas are financial or economic experts, but we have gained a great deal of knowledge and understanding in our 3 years of trading.
Many of our loved ones and friends are not so familiar with the world of trading or are, but just from an employer retirement or stock purchase program type of exposure. But, we dove into this world in 2021 and gosh have we learned so much! After a few great questions from family and friends, we figured we should do an episode covering the basics. For a long time, all we knew of the stock market was that it was a financial means to compound retirement income with generally a better rate than a savings account. We were not formally educated in the world of finance or business and hence felt it was beyond our scope to understand, much less attempt to dabble in personally. But a time did end up coming for us where we were ready to learn more. Let’s get started with a brief overview of the stock market, also referred to at the stock exchange.
Essentially, the stock market is a federally regulated marketplace, with physical locations but is mostly now significantly electronically managed, at which businesses and individuals can buy or sell shares of public companies. There is considerable variety in our modern age with the amount and types of equities, securities, energies, mutual funds & currency that can be traded. Shares of a company that one can buy or sell are a tiny piece of the company itself, such as a share of the company Microsoft, which has the stock market ticker of MSFT. In addition to gaining money if the stock gains value over the time that you own your share(s), some stocks will pay shareholders a dividend at regular intervals. A dividend is a small percentage of the corporate earnings and will vary in amount and payout schedule from company to company.
The act of trading in the stock market requires the use of a broker to process your transactions. Fees vary depending on the trading platform/ broker you use, method of trading, frequency of buying and selling, and security you are trading. The fees are often minor, but they can add up! We definitely recommend you do your due diligence with researching the platform options available if you don’t yet have one, as there are so many now and they are not all created equal. Reach out if you have any questions getting started and we’d be happy to share our experience with varied platforms! Predominantly, we have personal experience with Think or Swim from within the TD Ameritrade parent company, Sierra Charts, TradingView, and the broker AMP.
What about the question: how do you trade? Well, there are a few key methods to approach it. An investor will buy stocks or equities and hold them for weeks to years, as a means of slowly building wealth based on the historical steady growth of the stock market - think Warren Buffet. A swing trader will buy equities to hold for days to weeks to capitalize on a larger move of said equity but not with an intent to hold long term. The idea here is to develop skill with market analysis and ride a strong move up for a few days or weeks, and then ideally exit your position and avoid an inevitable retracement. A day trader will open and then close their trade intraday, in either the long(buy with intent of price to go higher) or short direction(sell with intent of price to go lower), in seconds to hours but will not hold a position overnight. The term market makers refers to the big money - large financial institutions that have the capital and ability to invest enough money to really move the market in a substantial way. Here at Market-Mamas, we are day traders!
This stock market world is massive and ever evolving! As such, we know we will never stop learning too! This general overview is the tip of the proverbial iceberg and we may have created more questions for you if you are a true beginner. Please, dive deeper with us!
It can be a lot to learn, especially if you are starting from scratch. So take your time! Now, beyond what is the market, what about: what is day trading? Prior to January 2021 these market mamas had no idea about the society of highly profitable day traders. As we just mentioned, the term day trading essentially just indicates that you are an intraday trader, which means you will open and close your market positions (buying or selling) within and before the end of the day. A day trader may execute a trade that lasts seconds, minutes, or sometimes hours, so it’s referring to the timeframe of which one participates in the market. Trading futures contracts like the S&P 500 or as we call “ES” is very popular due to its liquidity, volatility, and volume. Nasdaq 100 known as “NQ,” or nas-crack by some, is very heavily traded as well. Also, the Dow Jones Industrial Average is called “YM.” Those are some of the main indices most people will hear about from just listening to news. It’s very common to trade intraday with other instruments as well, such as commodities (think oil and gold), stock shares (TSLA MFST), option contracts (SPY,QQQ), or cryptocurrency (everyone has heard of BTC) as well.
So, then, the next question is how. Thanks to modern day technology along with lower commissions and fees, the act of day trading is actually more accessible than it has ever been throughout history. An internet connection, trading platform, brokerage, some do both like Think or Swim and NinjaTrader, computer, laptop, or phone even; and voila! You can place orders on the open stock exchange. Sounds simple enough? Not exactly, because those aforementioned items are only the bones of how to start day trading.
Let’s get a little deeper. The real meat of how to day trade will involve an extensive amount of time, tuition (yes you will pay to play), and education. You will find no lack of books, courses, video tutorials, and other content that will “guarantee” to give you an edge on trading the market. Choosing an honest company offering real education and not just selling fluff is a big factor. There are many self-proclaimed experts readily available to bait you with their fool-proof trading system. Heads up, you will want to be cautious when seeking out your trading education. It’s not uncommon for aspiring traders to invest in multiple educational courses with varying success rates before finding a style of trading that gives them a real advantage. And even after acquiring all of this, there’s still a missing piece that most beginning traders will give up before they discover.
That’s just the cold hard truth for sure. So then, why? Isn’t it too risky really? Indeed there’s most certainly inherent risk in trading, but also potential limitless reward. For us market mamas, the ability to master this skill that we could do from anywhere and at any time is invaluable. Trading statistics are hair-raising, however, also the majority of day traders quit after only a month. A lot of beginner traders give up before gaining an understanding of the levels of psychological breakthrough required to endure the evolution of developing sustainability. The path to becoming a profitable day trader is anything but linear with peaks and valleys that will unhinge even the toughest of individuals. We’ve come to accept there really are no shortcuts or perfectly planned paths to avoid the disappointing setbacks and bruised egos that are inevitable on the way. So the real reason for why even try is unique to one's own pursuit. Will the immeasurable opportunity to take full control of your financial future and change the status quo be enough to keep pushing? It was for us, and we aim to show how you too can keep entering the arena with us!
There is absolutely risk with learning to become a day trader. But, there is beauty in the journey as well. You have to have a strong constitution, conviction, and every day choose faith over fear to stay in this pursuit. And you have to keep learning for months to years before a sustainable system will really click and become repeatable for you. We recently watched an interview of a very successful lady trader and she’s 9 years in the game! The truth is most people can’t commit and accept the necessity to play the long game. But, if you can like we have, then it is absolutely possible. As was hinted at in all of our interviews with traders thus far and plainly stated by our day trading boss Jermaine, the deep psychological work is what is truly required to become a successful trader. Learning who you are at every level and applying strategy with your personal approach to this pursuit is the core of the difference between those who make it and those who tap out when the pain becomes extreme and before the light at the end comes into focus. That is the great differentiator!
You can study and learn all about Miss Market and all her options and moves for a long time. But then every aspiring trader just has to TRADE. Try it and see if it speaks to your soul. Day trading to a success point and true financial freedom is not a hobby. It just isn’t. It’s a life choice and a lifestyle. Organizing what you physically need to execute a trade and learning a price action strategy is the start of a whole bright and powerful world! And one that we are head over heels for, even on the days we are taken down and humbled. After all, our survival rate on the hard days to this point so far is 100%. And those are pretty solid odds right there.
If we’ve only created more questions for you with this introduction to our market, let us know! We’d love to hear what topics you guys would like us to dig deeper into and cover next.