Day trading is a type of trading where the trader will open and close their trades on the same day. Therefore, there are no open positions that will be maintained overnight.
For those investors who consider day trading, they aim at utilizing intraday market prices. So, they have to execute multiple short and long trade but also aim at capitalizing the temporary demand and supply inefficiencies in the market pricing.
According to the Financial Industry Regulatory Authority and New York Stock Exchange, a day trader is classified depending on the frequency of trades.
However, if an investor will open and close trades about four times in days, and the trades are more than 6% of trading activity, such an investor is referred to as a pattern day trader.
How to Succeed Day Trading?
When an investor wants to trade, they aim to make a profit, thus becoming successful. However, if the investors have little or no knowledge about day trading, it becomes hard for them to succeed. To succeed in day trading, they need to know the assets they want to trade and trading experience. And gaining knowledge at day-traders.net is getting information useful to succeed in day trading. Moreover, they can garner more skills from analytics and news feed by looking at various sources. That ensures the market analysis they use is based on reliable information.
Looking at most successful traders, they use technical analysis, which helps them generate signals for the best trading possibilities. Some also rely on fundamental analysis. On the other hand, the experienced traders rely on their instincts to determine the play to make. Succeeding in day trading requires traders to consider these strategies:
The strategy involves the investor to look at ways of making a profit through small price changes. For day trade, they will be executed quickly, such that after opening, they will be closed after a few seconds or minutes.
If the trader wants success with this strategy, they should have an entry and exit strategy. Besides, the day trader should also execute carefully because it’s not about small profit only but also ask spread and every penny for the bid. Scalpers, therefore, have to act quickly before the closure of window opportunity.
For example, looking at the technical chart pattern, a trader can think that stock A, which is priced at $15.50, will be due for a small. The trader buys the stock and sells it later at $16 after a few minutes making a 50-cent share profit.
● High-Frequency Trading (HFT)
This strategy, high-frequency-trading, is where the trader executes many orders through an automated trading platform. The trading platform utilizes an algorithm, thus able to analyze the market trends sending a basket of stock orders to benefit the trader. The strategy suits traders who are looking to benefit from small price discrepancies.
● News-Based Trading
This news-based strategy is where the trader uses accurate and timely information by checking various news sources. So, the trader aims at events to affect the trade price movement. Some events, like earnings announcements or acquisitions, will cause increased volatility, and day traders will benefit.
For example, if various reliable news sources will report about Company A planning to acquire Company B, then the trader will buy stocks from Company B. After announcements, the stocks for Company B will rise sharply, and the trader has to cash out and make a quick profit.
Pros and Cons of Day Trading
Similar to other types of trading, day trading has both ups and downs. Therefore, investors should consider both the advantages and disadvantages before deciding to choose the day trading path.
- No Risk Of Holding Overnight
Day trading closes their trading positions before the end of the day. So, the trader will not worry because of the overnight news events that substantially decrease or increase the next trading day. However, that is something likely to cost the investors’ money if left overnight.
On the other hand, sometimes overnight events causing ups or down on the next day, they bring profits for those who hold their positions overnight. For such benefits, day traders will not reap them.
- Returns Compound Quickly
At this point, you have to assume day trading is profitable. If you want to trade continuously, you can take the profits you earned from the previous day trading and trade for a larger position the next day. With that, you have a chance to generate more profits.
The downside is that frequent trading, it means higher trading costs in terms of fees and commissions. If you have to keep making payments to those extra charges, they will reduce your profitability significantly.
- Generates Substantial Profits Within Less Time
Many day traders will only make one or two trades but make them on early in the day. And by 10:00 a.m, they will have ended working on trading.
On the other hand, it requires you more time to trade than you have available. And therefore, day traders need to pay attention to the market action during the day. It is consequently outright impossible for someone who works on a full-time job.
The Bottom Line
Day trading involves some substantial risks. An ineffective strategy or a poorly executed strategy will lead to significant losses. And at worst, the trader might end up losing substantial amounts within seconds. However, for a trader to build a sizeable profit, it is possible but depends on experience, earnings, knowledge, and high-risk tolerance.
Therefore, day trading is risky and requires forethought, solid entry, and careful planning. For an investor to be successful, he or she should thrive on making trade fast. According to most financial advisors and economists, they suggest that more passive trading strategies for a long time offer them great room to generate sizeable profits.