Day trading is an active and profitable strategy in trading which involves the buying and selling of securities in the same trading session. Unlike other forms of investments that last for instance, weeks, months or even years, day trading investments take advantage of short term price fluctuations in the market to make profits.
This article will give you a brief overview of day trading from the courses offered, the type of markets to trade, instruments and tools to use, to the strategies you should apply together with risk controls. This article is helpful for both beginners who are willing to start their journey towards day trading or for advanced traders who want to master it.
What Is Day Trading?
Day trading is a strategy of buying and selling stocks within a day. The main objective is to take advantage of small price changes. Day trading is quite different from long term investment where the trader does not have to hold an open position during the night. They always manage to close all their trades before the end of the trading session to minimize the dangers of late market fluctuations.
Swing traders are involved mostly in highly traded markets which tend to experience more volatility as compared to other markets. This approach needs the knowledge of the market, fast decision making and a good strategy.
How Does Day Trading Work?
Day trading usually involves trading with securities with high price fluctuations. Competitive traders constantly seek to get into the market, and out of the market rapidly; and they use technical analysis indicators in their work. They use charts, patterns and indicators in order to predict market trends.
The process generally involves:
- Research and Analysis: Day traders first analyze which stocks or other assets are likely to move. They study the graphs and use indicators which can help in determining the right moment for entering or exiting the market.
- Executing Trades: Once the trader sees a trade opportunity, they then proceed to place the trade using their terminal.
- Monitoring Positions: Once a trade has been initiated, the trader stays in the trade and waits for some sort of change to occur so that he can take appropriate action. This may include changing the stop loss levels or taking profits if the market is in the traders’ favor.
- Closing Trades: As mentioned, all trades are closed by the end of the day. This reduces the exposure to market risks, especially the normal overnight positions that may be risky at times.
How To Start Day Trading
Getting started with day trading doesn’t require a massive investment. But, it does demand preparation and knowledge. Here’s a step-by-step guide for day trading:
- Educate Yourself: First, introduce yourself with the concept of trading and the market. Watch videos or take a course to understand how trading takes place and read books as well as follow the market news.
- Choose a Market: Choose which market you wish to engage in and this could be the stock market, forex or commodities market. Every market has its peculiarity and thus demands specific approaches.
- Develop a trading strategy that would cover: Trading targets or objectives, level of tolerance and methods for getting into and out of the trade. There is nothing like a well thought out plan that guides, and also assists in maintaining discipline.
- Select a Broker: Select a reliable broker that will bring all the necessary instruments for trading. Seek for one that charges less fees and has a good trading interface.
- Practice With a Demo Account: It is recommended to open a demo account first before going for the real money if one is keen on avoiding such a scenario. This is helpful in that you can learn and fine tune your strategies as well as gain confidence while trading without the risks of losing money.
- Start Small: When you are all set to trade with your own money, it is advised that the trader should begin with a small amount. This way, you have low risks while fiddling around to become a professional.
Tools of the Day Trader
- Trading Platform: First of all, the platform has to be reliable. It should give real time information, graphs and the ability to execute trades.
- Charts and Indicators: Charts and technical indicators are useful in showing price trends and patterns to enable traders to make their decisions.
- News Services: News feeds are real-time notification on the events that are taking place in the market which may impact prices.
- Economic Calendar: This tool assists the traders in keeping track of the important economic indicators and events which may affect the market.
- Risk Management Tools: Features such as stop order helps in controlling the risk since it automatically exits the position at certain levels.
5 Popular Day Trading Strategies to Boost Your Portfolio
Scalping:
This is a very active strategy whereby one can make ten, twenty or even hundred trades in a day targeting relatively small price movements. Traders who apply scalping intend to ‘scalp’ very small profit margins from individual trades most often using high volume.
Momentum Trading:
Momentum trading involves profiting from the existing trends in the market and these traders particularly focus on those that are strong. As such, by identifying securities that are approaching their high or low prices on high volume, they ‘surf’ a wave until there appears a contrary signal.
Breakout Trading:
This strategy entails taking a position immediately when the price crosses a certain level whether the support or resistance line. Breakout traders seek to make profits from the first price action at the onset of the breakout.
Reversal Trading (Counter-Trend):
Reversal traders aim at pinpointing the highest or the lowest levels of a specific market trend with a view of making a trade. Traders can identify when the market is oversold or overbought.
Range Trading:
The range traders will buy at the bottom of a particular range and sell at the top. This approach entails identifying patterns of prices and taking advantage of the tendencies relating to the prices’ fluctuations.
How Much Does the A Day Trader Make?
A day trader’s earnings can be quite unpredictable. It depends on a number of factors that include experience, strategy and the market environment. Some of the traders only make small profit while others may make very huge profits.
What is important to know is that day trading is not a sure fire method to earning profits. In fact, many traders lose money in their trading activities at different times and they may be new in the business.
The best that can be expected is to try to achieve gradual improvements instead of getting big wins once in a while. Most people who make it as day traders take time to learn and perfect their craft and come up with systems that suit them.
Conclusion
Day trading is one of the accessible ways to make money and have a fun time doing it, however it is not without its dangers. It is a commitment, an education and a strict regimen. Thus, knowing the basics, having a proper plan, and using proper tools, a complete newcomer can start his or her journey in day trading. It is therefore advised to start slow, work hard, and learn from every single trade that takes place in order to improve the chances of making a profit.
