What is Day Trading?
Day trading (and trading in general) is the buying and selling of various financial instruments, such as futures, options, currencies, and stocks, with the goal of making a profit from the difference between the buying price and the selling price. Day trading differs slightly from other styles of trading in that positions are rarely (if ever) held overnight or when the market being traded is closed.
Day trading was originally only available to financial companies (such as banks), because only they had access to the exchanges and market data. But with recent technology such as the Internet, individual traders now have direct access to the same exchanges and market data, and can make the same trades at very low cost.
Characteristics of a Day Trader
Knowledge and Experience in the Marketplace
Individuals who attempt to day trade without an understanding of market fundamentals often end up losing money.
One cannot expect to make money day trading. Day traders use only risk capital, which they can afford to lose. Not only does this protect them from financial ruin, but it also helps eliminate emotion from their trading. A large amount of capital is often necessary to capitalize effectively on intra-day price movements.
A trader needs an edge over the rest of the market. There are several different strategies that day traders utilize, including: swing trading, arbitrage as well as trading news, among others. These strategies are refined until they produce consistent profits and effectively limit losses.
A profitable strategy is useless without discipline. Many day traders end up losing a lot of money because they fail to make trades that meet their own criteria. As they say, Plan the trade and trade the plan. Success is impossible without discipline.
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