Day Trading: Understand The Concept And Its Operations Easily
- Stocks
Yaseer Rashid- 0
- 10 minutes read
There was a time when the only individuals who were capable of trading belonged from large financial institutions, trading houses, and brokerage firms. However, with the advent of the internet and online trading institutions, it has become easier for the average person to participate in this game. In this respect, day trading can turn out to be a very lucrative career.
Having said that, trading can be a great career option, it can also be a little risky for the newbies. Day trading for beginners is riskier especially for those who do not have a concrete plan or strategy. Even the most experienced day traders can face losses. So how does this day trading exactly work?
The Concept Of Day Trading
This concept usually refers to the practice of buying and selling a security within one trading day. While this can take place in any marketplace, it is widely practiced in the foreign exchange and the stock markets. The day traders are mainly well funded and well educated. They avail huge amounts of leverages and short term trading plans to capitalize on small movements of the price that take place in highly liquid currencies and stocks.
Numerous intraday strategies are being used by the day traders. These day trading strategies include:
- Scalping: this strategy tries to make various small profits on small prices alterations throughout the day
- Range trading: this strategy mainly uses resistance and support levels to evaluate buy and sell decisions.
- News-based trading: this strategy generally seizes trading chances from the heightened fluctuations around news events
- High-frequency trading (HFT): these strategies avail refined algorithms to utilize small or short-term market disabilities.
Characteristics Of A Day Trader
Professional day traders whose living is earned by trading are mainly well established in this arena. They usually have an in-depth knowledge of the marketplace as well. Here are some of the characteristics that day traders have in them.
- Experience and Knowledge in the Marketplace
Individuals who try to day trade without any knowledge of market basics often end up losing money. Chart reading and technical analysis are both good characteristics for a day trader to have. But without a more in-depth knowledge of the market you are residing in and the assets that prevail in that market, charts may be misleading. Do your due effort and evaluate the particular ins and outs of the products that you trade.
- Sufficient Capital
Day traders avail only risk capital which they can allow to lose. Not only does this safeguard them from financial damage, but it also helps discard emotion from their trading. A huge amount of capital is often required to capitalize efficiently on intraday price shifts. Having entry to a margin account is also important since fluctuating swings can receive margin calls on short notice.
- Strategy
A trader requires an edge over the remaining market. There are various different strategies that the day traders use which include arbitrage, swing trading, and trading news. These plans are refined until they create consistent gains and effectively limit the losses. There are many websites on the internet that solve your doubt of how to research stocks for day trading. Here is a strategy breakdown.
Type |
Risk |
Reward |
|---|---|---|
|
Swing Trading
|
High
|
High
|
|
Arbitrage
|
Low
|
Medium
|
|
Trading News
|
Medium
|
Medium
|
|
Mergers/Acquisitions
|
Medium
|
High
|
- Discipline
A strategy that is profitable is useless without any discipline. There are many day traders who end up losing a lot of money as they fail to make trades that cater to their own criteria. As they say, “Plan the trade and trade the plan.” Victory is impossible without discipline.
To earn a profit, day traders depend heavily on fluctuations in the market. A stock may be lucrative to a day trader if it shifts a lot during the day. That could occur due to a number of varied things that include investor sentiment, an earnings report, or even general economic or news of the company.
Should You Start Day Trading?
As stated above, the trading in consideration as a career can be difficult and at times can be a big challenge. First, you will have to begin with at least some knowledge of the trading space and get a good idea regarding your risk tolerance, goals, and capital.
- It is also a career that needs a lot of time. If you wish to perfect your plans and strategies after you have practiced, of course, and earn profits, you will have to dedicate a lot of time to it. This isn’t a job that you can do part-time or whenever you get the push. You have to keep yourself fully invested in it.
- If you do determine that the thrill of trading is correct for you, ensure, to begin with small. Emphasize on a few stocks rather than jumping into the market head-first and tiring yourself thin. Going all out will only perplex your trading plans and can bring big losses.
- Finally, stay calm and try to keep all emotions out of your trades. The more you can do that successfully, the more you will be able to stay committed to your plan. Keeping a level head enables you to stay up with your focus while keeping you on the lane you have chosen to go down.
If you abide by these simple guidelines, there are chances that you may be headed for a better career in this particular trading variant.
The Bottom Line
Even though the concept of day trading has become somewhat controversial, it can be a good channel to help you earn money. Day traders both individuals and institutions play a crucial role in the market by keeping the market liquid and at the same time efficient. While this concept remains famous among inexperienced traders, it should be kept mainly to those with the resource and skill that is required to succeed. There is one thing that needs to be noted, there are many day trading websites and day trading apps that have now simplified the work of the traders as well. So if you are wondering is day trading profitable, then yes it is if you know the right way to do it.
