Let’s face it. Day trading isn’t for everyone. So, its essential to understand day trading basics before even considering getting in. Frankly, it’s not even investing. Investing involves more than a few hours or minutes holding a stock. That doesn’t mean day trading isn’t without some form of analysis. It’s just that the analysis period is very short, say less than 12 hours. That may make you think of a day trader as a gambler.
Gambler or Investor?
Gambling is an investment in chance, while day trading is an investment in trends. Pulling the lever on a one-armed bandit slot machine and measuring the payoff will never result in a trend, however monitoring stocks and currencies will indicate a trend moving up, down or sideways. It’s these trends that make or break the day trader.
Day traders observe trends, measure movements and know when they should buy or sell a position within these movements. This isn’t an unusual method. What is unusual is their reaction to a movement occurs in minutes or hours, not days, months or years. A more accurate comparison would be to refer to the day trader as a short term speculator. They may make several trades is a single day. Small intra-day price changes trigger a purchase or sale of currencies, stocks or options.
Some people day trade to make a living while others are in it to earn extra income for other goals. These folks thrive on the success of a day trade, they have developed or learned solid trading strategies and are disciplined in making and following trading rules. There is no room for emotional trading in the day trader’s world.
Day traders are very competitive. Success is built on adhering to processes and methods that give the trader an edge over the rest of the market. After all, if tiny fluctuations indicate the time on neigh for a buy or sell, then there is virtually no room for hedging.
As a day trader you could very well make several trades in a day. In fact, you may only hold a stock for a few minutes, hours or overnight. You aren’t looking for long-term value stock investments; you are looking for stocks that indicate they are moving up or down a few cents. The markets may be experiencing a calm day, but there is plenty of volatility in the world and portfolio of a day trader.
The Trend is Your Friend
Day trading experts identify trends in the marketplace or within industries and then follow the trends. This really isn’t a day trading tactic, but generally an overall good trading practice. However, it has a more significant meaning in day trading. A day trader sets alerts within a trading program to cue on relatively small stock movements, say 1/8 or more of the price on that stock. These folks trade large blocks of shares (a block is 1,000 shares). 1/8 of a dollar is 12.5 cents. A price movement up of 1/8 on a block of 1,000 $1 shares is $125. Of course a similar price movement down by 1/8 will cost the day trader $125. Volatile shifts can mean a lot of money in the day trader’s world.
If you are a day trading stocks that are valued over $100, a movement of 1/8 of the stock price means thousands of dollars to gain or lose. Needless to say, in the course of a day there is plenty of opportunity for a day trader to profit – or lose. That’s the risk and reward of being a day trader. If you want to win, you need to understand more than just day trading basics!