What is Day Trading?
Day trading refers to the practice of buying and selling financial instruments within the same trading day such that all positions will usually (not necessarily always) be closed before the market close of the trading day. This is different from After-hours trading. Traders that participate in day trading are called day traders.
Some of the more commonly day-traded financial instruments are stocks, stock options, currencies, and a host of futures contracts such as equity index futures, interest rate futures, and commodity futures.
When we have definite day trading techniques and pre-determined strategies, Day Trading in Stock Markets is a highly profitable Business. In both rising and falling markets, profits can be earned regularly everyday. All traded stocks registers four price levels every day i.e., the opening price, intra day high price, intra day low price and the closing price. And a Day Trader can earn nice profits by playing in these price difference, whether with Buy Strategy (buy call option) or Short Strategy (buy put option).
Trading Frequency
Although collectively called day trading, there are many sub-trading styles within day trading. A day trader is not necessarily very active. Depending on one’s trading strategy, the number of trades made in a day may vary from one to dozens or more.
Some day traders focus on very short or short-term trading, in which a trade may last seconds to a few minutes. They buy and sell many times in a day, trading very high volumes daily and therefore receiving big discounts from the brokerage.
Some day traders focus only on momentum or trends. They are more patient and wait for a ride on the strong move which may occur on that day. They make far fewer trades than the aforementioned traders.
Many day traders sell their positions before the market close of the trading day to avoid the risk of price gaps (differences between the previous day’s close and the next day’s open price) at the open. Some day traders consider this to be a golden rule to be obeyed at all times. Other traders believe they should let the profits run, so it is acceptable to stay with a position after the market closes.
We can use some day trading techniques identify the exact entry price level and exit price level of the recommended stocks in real time, then we can earn profits on every day in bull or bear market. We should know also how we should approach the Stock Market as a Day trader to earn daily profits.
Profit and Risks
Because of the nature of financial leverage and the rapid returns that are possible, day trading can be either extremely profitable or extremely unprofitable, and high-risk profile traders can generate either huge percentage returns or huge percentage losses. Some day traders manage to earn millions per year solely by day trading using their day trading techniques.
Because of the high profits (and losses) that day trading makes possible, these traders are sometimes portrayed as “bandits” or “gamblers” by other investors. Some individuals, however, make a consistent living day trading.
Nevertheless day trading can become very risky, especially if one has poor discipline, risk or money management.
The common use of buying on margin (using borrowed funds) amplifies gains and losses, such that substantial losses or gains can occur in a very short period of time. In addition, brokers usually allow bigger margins for daytraders.
We can not totally avoid risks and losses are in Day trading. We have to manage risks to avoid losses in day trading. We can reduce the risk on our day trading activity by implement proper money management and learning to manage risks involved in day trading.
Day trading techniques is analyzing and interpreting the real time price action (price movement) along with price level of the selected stocks. Usually the profits are small and the comes very fast (vanish very fast too). The theme behind this technique is a small and confirmed profit in a very short time. Day trading techniques is analyzing real time price movement of the stocks, and catch up double confirmed small up moves and take advantage of that confirmed up moves to earn the profits.
In Long (Buy Stock or Buy Call Option) trades, you buy stocks first, and expecting the price increases and sell it at the higher price for profit.
In Short trades (Short Stock or Buy Put Option), you sell stocks first (you can borrow from from your broker), and expecting the price decrease and buy it at the lower price for profit.
Go to Basic Knowledge
Recent Comments