What is Day Trading?
Day trading is a special kind of trading where securities or other financial instruments are held for just a single day. This means that a day trader buys stocks today and sells off the stock by the end of the trading day. It could also mean buying and selling multiple times during a trading day. All transactions are initiated and concluded within that day.
This is different from swing trading in which securities can be held for weeks and even months or investment type trading where securities can be held for years. Learn more about day trading here: https://www.youtube.com/watch?v=jRNy7rTJK-A
Advantages of Day Trading
There are distinct advantages to day trading and we will look at these.
It’s not affected by Overnight Loses
There can be major prices crashes after the close of trading day. A mishap somewhere, an accident, a political development or even a scandal can cause a stock that was doing well the day before to crash during the night, opening on the next trading day at an incredibly low price. Day traders are never worried about this.
It Offers a Great Opportunity for Higher Returns on Capital
With your ability to buy and sell multiple times over the course of a day, you have a better opportunity of significantly growing your capital over the course of a trading day. Multiplied over several days, your initial capital can grow by several multiples if you know what you are doing. This is basically correct in theory as there is a lot of risk involved in leveraging.
It Can Be Done From Anywhere
This is something that can be done from anywhere including the comfort of your home. All you need are some necessary equipment – computer and a reliable internet connection.
Learning is Faster
Since all positions are closed daily, the cycle of buying and selling takes place within the trading hours, allowing for a shorter learning period. Observing multiple purchases and sales within a day ensures a faster learning than a person who is watching an investment which opens one day and may never close its position for the next few years.
Disadvantages of Day Trading
Shorter Time for Positions to Work Out
A swing trader is not overly bothered if there is a price dip within the course of a trading day or even days as this dip can become bullish, resulting in profits after an extended period. The day trader however does not have this advantage. Every position taken has to close favourably each day or else a loss is recorded.
It Requires Quick Thinking and Action
With the short time within which day traders have to make decisions, quick thinking and decisive action is critical. They do not have the luxury of taking time to think extensively as opportunities can be lost within very short time frames. It is therefore easy to make mistakes.
The roller coaster effect of making profits and loses within a single day can be emotional draining. Add to this the volume of trade that the day trader may complete in a day and you have a highly stressful condition that not everyone can cope with. There are ways to manage this emotional stress, check here to learn more.
Simple Day Trading Tips for Beginners
If you are looking to try your hands on day trading, there is a lot you will need to understand to help you succeed and be profitable. We will look at a few tips here but you can get a lot more information from Trading Review.
You need to begin to learn all you can about day trading. The more information you acquire, the better you will get at it.
Make Time for It
If you are going to be a day trader, you need to dedicate time for it. It’s not something you can afford to leave to go do some other things while you have open positions. It will require your time and attention so be sure you can give it both.
Determine Your Loss Threshold
How much can you afford to lose without your capital being badly hit? Here’s a simple rule that experienced and successful day traders use; they decide on a small percentage of their capital that they will put on any trade. They never trade above this! An ideal range will be between 0.5% and 2%.
If your threshold is 1% and you have a trading capital of $10,000, it means that all you can invest in a single trade will be $100. This is also means that the maximum you can lose on any trade is $100. This is a safe strategy to employ.
Start with few Trades
As a beginner, you should not start with so many different trades. Start with about two trades a day and grow from there.
Have A Strategy and Stick to It
If you have a strategy you are working with, you will not need to over-analyze every move. You will just need to watch and act quickly based on your strategy.
Control Your Emotions
We’ve already noted that day trading can be very emotionally stressful. You however need to keep this in check so it does not interfere with your trading.
There you have it. This is just a quick run-through of the subject of day trading. The information here is just meant to provide a foundation on which you can build when you are ready to try your hands on day trading.