Many people have an interest in day trading but don't want to pursue it as a full-time career or give up their day job to do it. In fact, many professional day traders only trade part-time, trading for one to three hours per day, and then they move onto other activities. If you have considered day trading part-time, the following strategies can help you maximize your efforts in the least amount of time and prepare you for some of the pitfalls you might face.
- The best times to part-time day trade stocks and futures are the hour after the market opens and the hour before it closes.
- Forex can be part-time day traded at any time during the week, depending on the pair you're trading and when their markets are open.
- Casual day trading is suitable for learning but not as a source of income.
Day Trading Stocks and Futures Part-Time
Day traders only need to trade stocks or futures markets for about one to three hours per day. While a few day traders do trade all day, the greatest possible returns in the shortest amount of time are typically concentrated around the official open and close of stock trading. These occur at 9:30 a.m. and 4:00 p.m. EST respectively.
When starting to day trade stocks part-time, focus your attention on the open of trading. Be sitting at your computer by 9:00 to 9:15 a.m., getting yourself prepared for your first trades. If you really don't have much time, the first 30 minutes is usually the most volatile time of the day, providing the most profit potential. If you have an hour, finish your trading by 10:00 or 10:30 a.m. EST.
If you have a bit more time, extend your day trading out to 11:00 a.m. EST. As the lunch hour approaches, you'll typically find fewer opportunities, and trades take longer to complete as volatility starts to die down.
If you can only trade later in the day or can trade near the open and the close of trading, consider day trading from 3:30 p.m. to 4:00 p.m. EST. Since day traders close all positions before or at the closing bell, the trading day ends at 4:00 p.m.
This applies to the stock market, but the same times apply to futures trading as well. You'll likely see the most trading volume and action occurring in futures markets just before and after the US stock market open. This holds especially true in stock-related futures, such as the E-mini S&P 500 (ES), one of the best day trading futures contracts.
Day Trading Forex Part-Time
If you can't trade during stock market hours, you can trade the foreign exchange (forex) market 24 hours a day during the week, making it a flexible alternative for day traders who only have one to three hours at odd times of the day or night to day trade.
Trading on the forex market takes place using currency pairs, with the most popular currency pair being the euro and U.S. dollar (EUR/USD). Other popular pairs include the GBP/USD, AUD/USD and USD/JPY. Each pair tends to be most active during certain periods of the day.
If trading the EUR/USD or the GBP/USD, recommended pairs for day trading, the most movement occurs around the U.S. stock market open and a few hours after, from 8:00 a.m. to about 11:00 a.m. EST. If that time doesn't work for you, 1:00 a.m. to 8:00 a.m. EST is also a good time to day trade.
Europe is open for business during these hours, and while this period isn't the most volatile, you'll see tradable trends that often develop during this time. This also makes a suitable alternative for people who simply don't like trading near the U.S. market open. Each part of the day has a different dynamic, and over time traders may develop a preference to one certain time of day more than another.
Casual vs. Part-Time Trading
One of the pitfalls of part-time day trading has to do with your mindset. For example, many potential day traders fail to make a distinction between part-time trading and casual trading. Many professionals recommend part-time, and like them, you can trade every day during the best times of the day and then do something else with your time.
On the other hand, being a casual day trader means you day trade whenever you have an urge, or when time permits. This isn't recommended, because it typically means you haven't done any real planning, your trading activity has no structure, and since markets act differently at different times of the day, trading at random or casual intervals won't make for a good strategic play.
Part-time traders don't trade all day, but they do trade regularly. Casual traders may trade for several days and then take several days off. These periods of activity followed by inactivity leave you less sharp, slow your reaction times and make you more susceptible to mistakes.
You can certainly be a part-time day trader, but don't be a casual one. Trade on a desktop or laptop during an allotted time each day, not on your smartphone in a bathroom stall at work. If you're casual and unstructured about your trading, you'll experience losses, while those who take trading seriously and work on refining their technique every day will take your money.
When doing part-time trading, do it right, treat it like a part-time job or business, or don't do it at all.
Most full-time traders who rely on trading as their only income end up trading part-time because they find that only a few specific hours of the day produce the best results for their strategies. Because of this, being an independent part-time trader or an independent full-time trader often mean the same thing. In terms of money, that means not giving up very much profit potential.
For example, a part-time trader may find that they can make $500 per day on average, trading during only the best two to three hours of the day. If they force themselves to trade all day, they would sit and watch their screen during times when good trading opportunities typically don't arise, resulting in a very similar daily profit outcome, but a much lower income per hour of time spent trading.
Trade during the best times of the day for your strategy, and you won't miss out on much profit compared to trading all day.
Final Word on Part-Time Day Trading
You can easily day trade on a part-time basis with stocks, futures, or forex. Learn the times of day that offer the best trading opportunities for your trading strategy. If trading stocks or futures, trading near the official U.S. stock market open or close is your best bet. For the forex market, day trading near the U.S. open or during the European session makes for the best trading time.
Part-time trading can work well if you trade regularly. If you want to casually dabble you're unlikely to gain consistency, meaning you might make some money but then give it right back. Learning how to day trade successfully may seem like a full-time job, but once you've mastered your strategy and technique, day trading really only requires part-time hours.
Frequently Asked Questions (FAQs)
Can you day trade part-time without becoming a pattern day trader?
If you trade more than three times in a week, you will be considered a pattern day trader. This comes with certain advantages, like more leverage, as well as extra regulations, such as an account equity minimum of $25,000. Day trading three times per week is technically part-time trading, but it would be difficult to gain the experience needed to develop effective strategies with only three trades per week.
How do you file taxes as a day trader?
Day traders report their income as capital gains on Schedule D of Form 1040. You will receive a 1099 form from your brokerage that has the information you'll need to file taxes. As a day trader, you won't receive any favorable tax treatment; you will owe your full income tax rate on your gains.