Honestly, my advice would be "don't do it." It's almost impossible to make money day trading unless you have a LOT of capital to work with - the threshold I hear tossed around a lot is $50k, and anything below that the fees will eat up most of your proceeds.
For perspective, consider this - say you only make two trades a day, one buy and one sell. If you do that for every trading day (5x52, then we'll take off an extra ten days for market holidays), that's 500 trades a year. What that "costs" you varies by your trading costs, but at Sharebuilder (which I use, for now anyway) a market order is $9.95. If I were to buy in and sell out of one position each day, that would cost me $4,975 a year in trading fees. That's almost a 10% return on a $50k initial investment, which is better than the broad market as a whole has averaged by several percentage points. That's an awfully high hurdle to exceed just to
break even.
If you want to get back into investing, by all means, do so. But day trading is probably not the way to go - rather than trying to profitably ride market fluctuations, look to purchase with a longer time horizon - look for stocks you believe to be undervalued, and expect to hold them for weeks to months, at least.
A few thoughts:
- Small cap is probably not a bad idea, but pay attention to volume - illiquid stocks can be very hard to liquidate, so if you have 400 shares in a position that maybe 5,000 shares trade at any given day, if you decide to sell out in a downturn you're going to run the risk of depressing the price down even further. For small cap stocks, they will tend to be more thinly covered by equity researchers (and thus more inefficiently priced), but the price of that inefficiency is a severe lack of liquidity.
- Google Finance is awesome. Not only does it provide a fair amount of good summary-level information and some pretty good stock screening information, but it also has most regulatory financing linked. Use with caution, as with everything - my experience is half the time you see a stock that seems woefully undervalued based on EPS or P/E, digging through the board reports will bring something to light that will convince you that the particular fundamental is maybe a bit misleading, and the price is justified.
- I'm guessing you haven't been trading online in a couple years - don't expect to find something that will give you 40 free trades a month anymore. Online trading has gone mainstream, brokers no longer need to entice people to try it, so while pricing is generally pretty competitive and you should have no trouble finding an account with no monthly fee and relatively affordable trades, most brokers can't really afford to give away large numbers of something that has a cost to them (trades). Expect a couple free trades on signup or with a referral, maybe, but not much more than that.
- If you're trading small amounts of money (say, less than a couple grand), forget everything you know about diversification. It's just not possible, for reasons similar to why day trading isn't a good idea unless you have a LOT of cash to work with - With $19.90 as the cost of opening and closing a position (again, based on a 9.95 market trade), on a $1000 initial investment, your cost of trading is almost 2%, meaning you don't pocket a dime unless the security moves up 2% in value. Assuming pricing is even remotely efficient and a stock is equally likely to go up as down (which holds on average), that's an awfully high probability of a loss. Find a security you think is undervalued and will rise, and go all in. It's riskier, but with judicious use of stop-loss orders (and think in terms of % price change here too) you can at least limit the liklihood of large losses, which increases the liklihood of profitable trading somewhat.
Also, think long and hard about your objectives here. What are you looking to do, trade because you enjoy the challenge, or because you want to make money? Is this a serious investment, say for retirement, a down payment on a home, or a college tuition, or are you looking to gamble? And is this in addition to a 401k or some form of IRA, or do you have no other market exposure? If you're looking to gamble on the market, don't care if you lose money, and it's money you don't need because you have substantial retirement savings, then trading in individual securities makes sense. If you just want to make money for savings, though, the lack of diversification small scale trading requires (plus the fact that, nothing personal, you're probably not as good as researching investments as those who do it for a living, for obvious reasons) is simply not worth it. Look into ETFs - the market has exploded in recent years, so there's a lot of well-diversified, liquid options out there if you want to take on exposure to specific asset classes. Ibn fact, there's even a fair amount of room for active tactical trading here, too, though again you have to be careful with transaction costs.
