What is Day Trading?
Day
trading is a form of financial instrument trading that focuses on short term
market action. Trades are completed throughout the day and are almost always
exited by the end of the day at market close. The majority of these investors
hold on to the trades for the timeframe of minutes to a few hours. These
frequent, short term trades aim to complete a high volume of trades at a small
profit for each trade. Small individual benefits are maximized by the sheer
number of trades that are completed.
The
internet has allowed individual investors to become more involved in day
trading. Technology has provided real-time access for everyone to
market
information that was
previously only accessible by financial institutions and commercial traders. Higher
volumes of trades at any given time increase market volatility and introduce
fast, short-lived trends that can be very beneficial for day traders. Day
traders typically deal in one of the following:
-
Futures
-
Options
-
Stock
markets
-
Currencies
Day Trading Strategies
Day
trading is popular because it has many different strategies that can appeal to virtually
every personality type. A single day is a very long time in this method of
trading and many of the strategies rely on trades that last seconds or a few
hours. These types of strategies are suitable for more aggressive, hands-on
investors. The short term day trading strategies include:
-
Scalping
– trades that typically last only a few seconds and have the smallest profit
margins. This type of trading requires the quickest investor reactions.
-
Trend
Trading – trades that last between minutes to hours and have modest profit
margins. These trades are based on how the stock performs as a trend during the
day. Long trades are encouraged on upward moving stocks (i.e. price is
increasing).
-
Counter-trend
Trading – trades that generally last a few minutes and have modest profit
margins. These trades go directly against the current market trends.
-
Range
Trading – short term trades that generally last only a few minutes. It is aptly
named because it involves both long and short trades.
Day trading
can be successful as a result of a large volume of trades made throughout the
day or it can be the result of a smaller number of criteria-based trades.
Access
to real-time information and the ability to execute trades as quick as possible are absolutely
imperative to successfully implementing a day trading strategy.
Day Trading Software
Emotions
are often considered the enemies of successful day traders. Fear can result in
missed opportunities and greed is often the root cause of lost capital. The use
of a software program often removes many of the emotional decisions that are
known to hinder success.
Well-designed software programs can analyze available data to
pinpoint trends quickly and effectively. This type of efficiency is beneficial
for all types of day traders; whether the focus is on being informed to
complete many trades or to monitor many situations until a potential trade
matches the given criteria. The software program will produce results that are
objective and able to be acted on quickly.