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Learn More about Day Trading

What is Day Trading? "Day trading" means that a trader tries to make money buying and selling stocks during the day taking advantage of the daily price movement. Day traders end the day flat ( with no open positions ).

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.

It is commonly stated that 80-90% of day traders lose money. Also price movements in a day are few, so why people trade only in a day? What are advantages of being a day trader?

Advantages of Day Trading 

Less Stress (Zero Overnight Risk)

To avoid the risk of price gaps (differences between the previous day's close and the next day's open price) day traders close all their positions at the end of a trading day. Because of this, day trading is less stressful than holding stocks overnight. After market closed you are not worried what will happen until tomorrow and what news will distribute. You never ‘lost sleep'; in the morning have a nice feeling because you don't care what the market's doing at the open.

Cheaper Commission

One thing that makes day trading potentially profitable is commission structure. Day traders pay ‘ per share' instead of ‘per trade' structure . If you pay about $10 per trade now when you become a day trader, you may pay about $0.01 per share.

Increased Leverage

Day traders could have 4 times their equity as intraday buying power. This great margin can increase your profits if used wisely. This increased leverage makes day trading very risky, especially if one has poor discipline, risk or money management.

Profit in any market direction

Day trading often will utilize short-selling to take advantage of declining stock prices. The ability to lock in profits even as markets fall throughout the trading day is extremely useful during bear market conditions.

Techniques

Trend following

Trend following, a strategy used in all trading time frames, assumes that financial instruments which have been rising steadily will continue to rise, and vice versa. The trend follower buys an instrument which has been rising, or short-sells a falling one, in the expectation that the trend will continue.

Range trading

A range trader watches a stock that has been rising off a support price and falling off a resistance price. That is, every time the stock hits a high, it falls back to the low, and vice versa. Such a stock is said to be "trading in a range", which is the opposite of trending. The range trader therefore buys the stock at or near the low price, and sells (and possibly short sells) at the high. A related approach to range trading is looking for moves outside of an established range, called a breakout (price moves up) or a breakdown (price moves down), and assume that once the range has been broken prices will continue in that direction for some time.

Scalping

Scalping originally referred to spread trading. Scalping is a trading style where small price gaps created by the bid-ask spread are exploited. It normally involves establishing and liquidating a position quickly, usually within minutes or even seconds.

Scalping highly liquid instruments for off the floor daytraders involves taking quick profits while minimizing risk (loss exposure). It applies technical analysis concepts such as over/under-bought, support and resistance zones as well as trendline, trading channel to enter the market at key points and take quick profits from small moves. The basic idea of scalping is to exploit the inefficiency of the market when volatility increases and the trading range expands.

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