Day Trading What Does It Mean
Day trading is a form of speculation in securities in which a trader buys and sells a financial instrument within the same trading day.
They like investing in this fashion because they avoid unmanageable risks and negative price gaps between one day’s close and the next day’s price at the open.
Day trading contrasts with the long-term trades which stresses buying and hold also referred to as value investing strategy. Day traders are considered by some as being no better then gamblers, though a day trader does not consider himself as such.
What Day Traders Trade In
Some of the more commonly day-traded financial instruments are stocks, options, currency including cryptocurrency, contracts for difference, and futures contracts such as stock market index futures, interest rate futures, currency futures and commodity futures. Honestly just about anything that is available to be traded on they could speculate on. A recent development would be Broadway shows though some do not sell the day of purchase.
History Of Day Trading
Day trading was once an activity that was exclusive to financial firms and professional speculators with close access to information. If the average individual has to wait till the morning to pick up the New York times for the latest news before he made that days investment. Obviously the guy that got the info. the day before could be in there first and be able to pull out by the spike.
With the advent of computers and online platforms it became available to the masses. With this an added factor came into play the speed of computers and the distance from the data source because in this industry a few seconds in time difference can equal millions.
Day traders that are professionals and large financial institutions, do not use their own capital. They further receive a base salary of approximately $50,000 to $70,000 as well as the possibility for bonuses of 10%-30% of the profits realized.
Forms Of Day Trading
A trader needs an edge over the rest of the market. There are several different strategies day traders use.
- Day trading which means same day in same day out.
- Swing trading which is buying and holding for short time. Though longer then 1 day.
- Arbitrage which means different prices for the same item on different markets.
- Trading news obviously this is news in your area of trade.
- Focusing of Cooperate Mergers
Below is a risk assessment chart, obviously with time you will learn and this will help mitigate your risk.
Should You Become A Day Trader And What You Need To Be Successful
Individuals who attempt to day trade without an understanding of market fundamentals often lose money. Technical analysis and chart reading are both good skills for a day trader to have. But without a more in-depth understanding of the market you’re in and the assets that exist in that market, charts may be deceiving. Do your due diligence and understand the particular ins and outs of the products you trade.
Day traders only risk capital which they can afford to lose. Not only does this protect them from financial ruin, but it also helps eliminate emotion from their trading. A large amount of capital is often necessary to capitalize effectively on intraday price movements. Having access to a margin account is also key since volatile swings can incur margin calls on short notice.
Day Trader Tips
A profitable strategy is useless without discipline. Many day traders end up losing a lot of money because they fail to make trades that meet their own criteria. As they say, “Plan the trade and trade the plan.” Success is impossible without discipline.
To profit, a day traders looks for market volatility. A stock is attractive to a day trader if it moves a lot during the day it gives him the most opportunities to sell at a profit .
This could happen because of a number of different factors including earnings report, investor sentiment, or even general economic or company news or even general news.
Multiple News Sources
News provides the majority of opportunities from which day traders capitalize, so it is imperative to be the first to know when something significant happens. The typical trading room contains access to the Dow Jones Newswire, constant coverage from news organizations, and software that constantly analyzes news sources for important stories.
Trading software is an expensive necessity for most day traders. Those who rely on technical indicators or swing trades rely more on software than news. This software may be characterized by the following:
- Automatic pattern recognition: This means the trading program identifies technical indicators like a pattern which in investors term called a flag and range of price referred to as channels, or more complex indicators such as Elliott Wave patterns in short is based on Psychology what will lead to what .
- Genetic and neural applications: These are programs that use neural networks and genetic algorithms to perfect trading systems to make more accurate predictions of future price movements.
- Broker integration: integrating your plan with your broker to prevent your emotions from making a moment decision and using the rational opinion you have now for the purchase.
- Back testing: viewing how your strategy performed in the past in order to predict more accurately how it will perform in the future. Keep in mind that past performance is not always indicative of future results.
Combined, these tools provide traders with an edge over the rest of the marketplace. It is easy to see why, without them, so many inexperienced traders lose money. Additionally, other elements that influence a day trader’s earnings potential are the market they trade in, how much capital they have, and the time they are willing to devote.
Is Day Trading For You
You need to come in with some knowledge of the trading world and have a good idea of your risk tolerance, capital, and goals.
- Day trading is also a career that requires a lot of time so if you did a flip or to and were successful don’t let it get to your head. Day trading as a professional requires a lot of time and patience analyzing over and over the data.
- Think its for you start small and learn from those trades, first your risk is smaller. Second your analysis of what is going on will be much easier and with that being said will be more accurate.
- Finally, you must be a cool and level headed fellow. Otherwise your emotions will always get the better of you and you will lose money.
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