In a previous post, I focused on the basics of day trading, the general principles behind it. The problem with day trading is that it could be very dangerous to your financial health. My First Million at 33 talks about their experience in day trading early on in their investing career, where they lost 40% of their investment.

My own initial foray into day trading was a bust. While my theoretical models kicked butt and helped me predict 3 of 4 market changes for 2000, my intro to investing in late 1997 crushed my finances for a couple of years, because of my losses.

That said, the fact is, if you are keenly observant of the market, and educate yourself in depth about at least 3-4 industries, and be at least aware of the goings on of several more, day trading could work for you. If you are not willing to put in the necessary time, you might as well just throw your money into a wastecan, though. (Or go visit OSAWatch and learn about high-interest, risk-free Online Savings Accounts - OSAs - protected by the FDIC. OSAs are a great, liquid way to stash your cash between stocks.)

Here’s what I consider to be a truth about day-trading: don’t bother with less than $10,000 of investable assets. Unfortunate but true, if you have that little to invest, you probably need that money, can’t afford to lose it. In fact, I’d recommend something like $25,000 and up, and trading with no fewer than 3-5 stocks in different sectors at any given time. (But you can get there from here.)

In fact, I don’t recommend more than 10 stocks, at least for initial day trading, because it’s really difficult to keep track of the company and industry goings on of 10 companies, especially if they are all in different industries like they should be.

And if you are doing this part-time because you have a day job, you should stick to 3-5 stocks. You cannot be worrying about more than that, else it’ll start to affect your performance at work. Believe me; I know what I’m talking about.

Here’s something else, too, that you may strongly disagree with. But if you’re younger than 30, I don’t recommend taking up day-trading unless you are very disciplined, know how to take a loss, and are constantly learning about various industries and the market. (You should still read this article, as I give some pointers on how you can start your investing career and work your way into day trading.)

It’s only my opinion, but the sharpest day traders aren’t just trading on analytical changes. They are worldly, read a lot of newspapers and websites. In short, they are market-aware, and know about industries that they are not even investing in.

That sort of mindset is necessary if you want to become a power investor, and particularly if you want to become a full-time day trader. And remember that losing occasionally is part of the deal.

Another key skill in day trading is knowing when not to trade. It sounds kind of cliched, but if you are new to this activity, you’ll likely be bright-eyed and bushy-tailed - eager to invest your hard-earned signing bonus or yearly bonus, or your savings in general. Doing that could mean making irrational trades, particularly bad purchases.

Start off slow and increase your trading activity, especially if you are very young and/or have very little to invest.

Start by setting up a trading account. There are also sorts of discount brokerages these days, and they tend to charge less per trade than most banks.

Deposit your initial investment capital into a trading account. Many of these accounts will actually pay you money market fund interest rates, which have hovered between 4-5% APY for several years.

Meanwhile, start tracking the companies and industries that you are interested in. Learn about industries that are related. For example, does one industry rely highly on, say, transportation? Track the transportation industry as well. (In fact, I recommend that regardless of the industries you are investing in, since most rely on transportation for distribution.)

A good place to start is to purchase shares a company that you know well - maybe one headquartered in the city/ town you live in. Chose a company that you wouldn’t mind a long-term investment in. Get used to any trading cycles that they may have. (E.g., companies selling razors may experience higher sales in spring and summer.)

Do the same for two more companies, but all in different industries. Now, say you are tracking three industries. Start tracking at least 2-3 more companies in each of these industries.

Once you are comfortable with your increasing knowledge of an industry, and if you are ahead on some of your stocks, consider taking a profit and trading one stock for a new one. If that industry is doing well, the new stock can be in the same industry. Or a different one. Or you might take cash for now and hold it in a high-interest account.

If I sound overly cautious about how to start day trading, I am. There’s no shame in starting as a long-term investor and slowly decreasing the amount of time between your stock trades. In fact, I highly recommend this method, as it gives you time to learn about the market and investing in general.

So to summarize, to move from being a general investor into becoming a day trader, start with shares that you don’t mind having for a long-time, then slowly decrease the time between trades. Some people feel more comfortable starting at quarterly trades, moving to monthly, then weekly, and after gaining some trading experience, moving into day trading. Give yourself time to learn which companies are good for short-term holdings and which are better for longer-term.

Again, I caution you: if you are new to investing, do not go directly into day trading. And don’t be afraid to mix long-term investing in with short-term.