Day trading – Swing Trading | How to Day Trade

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There are different groups when it comes to day trader we have a pure day trading and a swing trader.

  1. A pure trader is a trader who buys and sells stocks and ends the trading day in cash without any open position. They do not hold any positions overnight, during the trading day they sell everything they have bought that day. Also, they do not carry anything over off market hours.
  2. Swing trader is somebody who holds positions overnight possibly for several days like 2-5days. Most day traders are combinations of these two things.

Day trading

Day trading is a type of trading that involves the buying and selling of a security and financial instruments within the same trading day. Day trading, a trading that happens within a day such that all positions are closed before that market closes for the trading day. Traders who participate in a day trading are called day traders. Traders who trade in this capacity with the aim of profit are called the speculators. It is a type of trading that involves opening and closing a small number of trades in a day. Day traders can speculate on the variety of markets, including stocks, forex, commodities, and futures. If you are a very busy person or you have a full-time job, then you will need to consider whether you can devote enough time to monitoring and analyzing the market to be successful.

Read Articles on Forex Trading following this link

HOW DO DAY TRADERS TRADE?

What do day traders actually do?

  1. First of all Professional high-frequency trading(HFT) platforms. They use direct access brokers, they use high-speed internet connections, they have very sophisticated setups, they have the best internet connections you could have. As a day trader even a couple of the second delay can cost you hundreds worth thousands of dollars, you will want to use the fastest possible trading systems available.
  2. Day trader’s trade based on technical stock analysis, charts and data.
  3. They have little or no concern about company fundamentals, you not going to see day traders reading company earnings reports or worried about the fundamental strings of a company.

Day trader use charts and technical indicators to determine:

  1. The pattern of the stocks.
  2. Volumes of the stocks.
  3. Price movement of the stocks.

The common technical indicators are: resistance/support levels, MACD, SMA, volatility, price oscillators, bolling or bonds, candlestick patterns, RSI

LEVERAGE

Day trading utilizes something called Leverage which means

  • Day traders trade in a margin account to increase leverage on a position.
  • High trading volume results in high commission costs, most day traders need to borrow money in order to make a profit. They have to make a commission cost in order to make a profit on investment, they trade on margin which basically means that they are buying an asset with a buyer pays a percentage of the asset value and borrows the rest on an interest loan just like you getting a loan from the bank.

Strategies of day traders

  • Most day traders make money on relatively small price movements in liquid stocks with mid to high volatility. So in order for a day trader to make money on a day trade, they have to be some or significant or at least noticeable price movement with the stock. If the stock doesn’t change in value throughout that day or it is a low volatility stock you not going to see many day traders trading that stock or if there is a mid to high volatility with that stock if it is going up and down that’s when you will see day traders because you need a price swing in other to make a profit.

Higher volatility = Higher Risk = Greater price movement/ Swing potential

Lower Volatility = Lower Risk = lesser price movement/ Swing potential

  • Day traders plan the trade: successful traders always plan their trade, they decide on an entry point for stock, they decide an exit point for the stock, and also decide on a stop/loss point which is where they say no matter what “I am cutting my losses if the stock falls to this value and calling it a day” in that way they can minimize losses.
  • Some trade one or two stocks a day, some trade a handful.
  • Successful day traders learn the personalities (volatility) of certain stocks under changing market conditions.

PROS AND CONS OF DAY TRADING

Pros

  • Potential to earn large amounts of money: The biggest lure of day trading is the potential for spectacular profits, provided that you can risk a lot of money. But this may only be possible for the individuals who possess all the traits—such as decisiveness, patience, knowledge, understanding, discipline, and diligence, required to become a successful day trader.
  • Independent: The day trader works alone, they are their own boss, answerable to no one. He can have a flexible working schedule, take time off whenever he wants, and he works at his own pace no one tell him what to do, unlike someone on the corporate organization.
  • No restrictions: day traders can from anywhere as far as there are internet connection and a desktop.
  • Works hours can be shorter than in the corporate world
  • No long-term education: it doesn’t require any expensive education, and doesn’t require formal requirements before you can become a day trader.
  • Choose your market to day trade in. You can choose from a variety of different markets to day trade. Find one that fits you, your behavior, trading strategy, risk profile and, your working hours.

Cons

  • Day trading is a high risk, there is no guarantee that you will make the money you have invested back, This is from Investopedia they said they estimated the success rate of day trader that they are roughly 10% successful day traders, 90% unsuccessful day traders, the U.S. Securities and Exchange Commission points out that “days traders typically suffer financial losses in their first months of trading, and many never graduate to profit-making status.” So day trading is a very risky trade.
  • Day trading is very expensive as a day trader you to spend heavily on a trading platform, charting software, state-of-the-art computers. You need to spend software and the right computers to spot the price variations and access the necessary financial information.
  • It is very stressful because as a day trader you need to watch multiple screens to spot trading opportunities, and then act quickly on them; this can also lead to burnouts.

FINAL WORDS

Day trading is a very risky and expensive trade as a beginner I will urge you to make proper research on it before going into it, and also invest money you can afford to lose to avoid being in debts.