Day trading is definitely one of the most common forms of trading, promising a prosperous career. Highly rewarding as it may seem, day trading is still considered greatly challenging to not only the fresh beginners but also the seasoned day traders with many years spent in the markets.
Once an exclusive activity to financial firms and professional market speculators, day trading has become more well-known to potential investors coming from different backgrounds and expertise.
Certain events – the deregulation in the United States in 1975, the high volatility from the markets during the dot-com bubble, the incredible progress of digital trading platforms during the 90s – have led to the expansion of day trading as well as the inevitable increase of the number of day traders looking the dream profits in this promised land.
So if you are new to day trading, do not skip the following part and you will soon get the answer to the question that took you here: “What is day trading?”
What is Day Trading?
Day trading is a type of investing in financial markets where a trader makes transactions on financial instruments on the same trading day so that all positions are concluded before the market closes for the day. Investors who regularly do this process are commonly referred to as day traders. Day trading can be carried out in any financial market but is most common in the forex (foreign exchange) market and the stock market.
In contrast to other long-term forms of trading, day trading does not possess certain aspects such as buy-and-hold or value investing strategies whereas it can be somewhat compared to swing trading due to some similarities, except for the fact that positions are usually held for a few days in swing trading.
In recent years, the accessibility and the process of day trading have become much simpler thanks to the advancement of day trading platforms in specific, and information technology in general.
Eager beginners should find it easy to get courses about the basics of day trading on online learning platforms.
How Does Day Trading Work?
When it comes to day trading, outstanding performances and results all lead back to the most important requirement: volatility. To make money with day trading, day traders rely heavily on the fluctuating movements of the markets. As a result, stocks that move a lot throughout the day – for whatever reasons: good news, bad reports, tempting rumors that promise high profitability – are usually the best choices.
Day traders also make sure to keep their eyes on stocks with high liquidity that grant them the ease of entering/ exiting trades without significantly affecting the stock’s price.
Day traders will buy a stock it is moving higher, then consider selling it should it move lower, trying to make some guaranteed profits on a stock’s fall. That same stock can be traded for various times within a day, repeating the process: buying it and short-selling them right after a price fluctuation. No matter which strategy you choose, it is the mobility of the stocks that you are looking for.
One common practice in day trading involves using borrowed money to make trades to increase profits. This is known as “buying on margin.” With a margin account, you can borrow up to 50% of the value of the securities that you already own as leverage.
Leveraging like this can drastically boost profits above and beyond what you could achieve with your own money, but it comes with significant risks — your losses will be amplified as well.
Common Strategies in Day Trading
Below are some basic strategies that day traders usually try out during the trading process. It is highly recommended that a trader tries to remain adaptable when applying such techniques to constantly changing market conditions.
- Scalping: seeking to generate a large number of small profits from small price changes throughout the day
- Trading the news: typically taking advantage of trading opportunities created by increased volatility in response to news events.
- High-frequency trading: utilizing the support and resistance levels to make buy and sell decisions.
- Price action trading: requiring the understanding and the use of technical analysis of price action, chart patterns, and volume while being independent of relying on conventional indicators on whether or not to take a specific action
- Algorithmic trading: involving buying commercially available automated trading systems or developing their own programs
The Advantages and Disadvantages of Day Trading
When compared to other forms of investment, day trading without a doubt carries outstanding advantages that are tempting enough for fresh traders to embark on a trading career or for veterans to never stop trying from time to time:
- Experiencing little to no impact when holding a position overnight. Because day traders conclude their trades before the close of that trading day, they will be able to sleep well through the night without worrying too much about some certain news suddenly popping up bringing massive changes to the markets.
- The rate of return on investment increases (providing that your previous trades were profitable). You might be able to use the earnings from one trading day to trade a bigger position the next and make even more money.
- Being a day trader as your professional career may take less time to make significant earnings than other jobs. Some traders complete their trades early in the morning, allowing them to take on other activities after lunchtime.
The corresponding disadvantages
The glamorous appearance and the promising profitability brought by day trading are hard to pass by, yet it is nevertheless advisable to carefully consider the aforementioned pros as well as their following corresponding cons:
- For traders holding positions overnight, events in such a time resulting in gaps up or down the following trading day can occasionally be quite highly rewarding. However, day traders would find it hard to meet said situations should their routines remain unchanged.
- Higher trading expenses, including commissions and fees, resulting from more frequent trading. Paying all those additional fees could dramatically reduce your profits.
- Unlike professional full-time day traders, the part-timers will certainly have a tough time executing their trades, let alone observing the trends and watching the news, without negatively affecting their other jobs.
Characteristics of a Day Trader
Being a day trader poses a tough challenge to anyone even with or without a prior understanding of the markets. The following characteristics should be in your consideration should you plan to take on the subject:
- The basic understanding of the trading world, including risk tolerance, capital, goals
- A considerable amount of time to devote to your trading process
- Appropriate approaches, such as starting small and keeping yourself from spontaneous decisions
- The ability to keep your heart burning with passion while your head cool not to let any unnecessary emotions interfere with your trades
By complying with these guidelines, and keeping your passion for day trading always burning hot besides understanding day trading, you already possess the essential features of a sustainable trader, heading towards your dreamed consistent flows of trading profits.
Where to Learn Day Trading
Deciding how to learn about day trading and choosing a course to spend your time on are always tough obstacles for trading novices. But do not worry, we got you covered. Below are some of our recommendations for day traders at the beginner level. Check them out:
The BOSS Pack Course offers extremely simple methods to make profits from day trade options, even if you have not traded options ever before.
Crowdfighter Course of Bkforex shows you how to trade like a forex professional, getting your deserved earnings while avoiding the crowded trading trends.
Making money through day trading is extremely simple as long as you have the essential information and are willing to spend time doing enough extensive research. Otherwise, ignorance will soon find its way to devastate your fortune. Remember to keep your head cool, beloved traders! And stay tuned!