Day Trading - What is it?
What is day trading? Chances are you've heard about it or maybe you've seen it on TV - either way it's all the rage among young professional traders, who enjoy a fast-paced, intense trading experience. In some circles it is seen as a 'must do' type of trade. So what is all the hype about, and is it justified?
Day trading is a type of stock trading in which stock positions are held for short periods and several trades are made each day. A day trader is a career stock trader who buys and sells stocks quickly, often making several dozen trades each day and then closing his stock position (i.e. selling his stocks) at the end of each trading day.
Day trading can be an expensive pursuit because so many daily trades add up to intense fees for commissions and bid/ask spreads. However, it can be a valuable trading tool if you know how to use it.
How does day trading work in practical terms? Each day traders buy and sell stocks. What is their aim? Day traders operate on the basis that stock prices will fluctuate in value over the course of the day enabling them to make a profit in a relatively short space of time.
Day trading professionals keep stocks in their possession for a few seconds or up to a few hours but, as mentioned earlier; will make sure all their stocks are sold by the close of trade.
Day trading is on an intra-day basis. When the day ends they will not hold any stock at all but they will have made anything from a couple of cents to many points for each share.
Day Trading Styles
There are two main types of day trading and they can be summarized as follows:
Day Trading 'Scalpers'
Scalpers are traders that buy and sell large numbers of stocks repetitively over very short periods i.e. seconds or minutes. These traders are attempting to make small amounts of money for each share sold. Day trading quickly, and in large numbers of stocks ensures that they take on as little risk as possible.
Day Trading - 'Momentum Traders'
In momentum trading, only stocks that are in a moving pattern throughout the day are traded. This type of day trading seeks to buy when stocks are at their lowest prices and sell them when they are at an all-time high.
Is Day Trading Risky?
If you paid attention to the above explanation of day trading ins and outs you will have realized by now that the answer is a resounding, yes! This type of trading is a very risky business indeed!
Day trading is a little like fighting a do or die battle. When you trade quickly and try to sell everything at a profit by the day's end you are fighting against the clock, the market, and other traders trying to outdo your best efforts. When you make money, somebody else loses by default so it's not for the faint-hearted.
The ultimate aim of day trading is to win. You want to make as much money as possible with your investment choices and you want to do it before somebody else does. Day traders on average are risking $ 10 000 or more per day on trade that is constantly fluctuating so it's a game of catch-up. It is entirely possible that one bad decision could leave you with a 100% loss.
It's not unusual for day trading professionals to suffer both huge losses and gains in this MonopolyŽ game. If you can't handle the thought of making as much as you lose get out - now! On the other hand if you feed off adrenalin, thrive on outwitting the competition, and can cope with losing big from time to time, get on to the floor and start trading.
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