day trading strategiesDay Trading Made Possible By PC’s

When PCs became a reality in the average household, personal investing and day trading became a possibility.   Suddenly millions of people could invest in their pajamas!  In fact, a lot of people have done well performing their own stock investments. Fewer have experienced success with day trading. However, there are people who make an excellent living doing it.  They are able to follow some day trading strategies that helps them make smart decisions.

Day trading is a risky and stressful form of trading that involves buying stocks in large blocks.  A block being 1,000 stocks. The day trader sells that block of stock usually within the same day when the stock moves up, down or sideways. The concept is that catching stock movement even in small amounts provides the trader enough gain to make the risk worthwhile. Day trading is fairly young as a trading venue. In fact, day trading didn’t occur until the 1990’s.

When personal computers brought the power of personal trading into the home, day trading was born. Before then, you could by stock through a brokerage and not have to pay on the stock for 10 days. The settlement period took this long. This meant you actually had a period of time owning stock you hadn’t paid for.

How It Works

If you ever floated a check, it’s kind of the same thing. You purchase something with a check hoping that the check wouldn’t clear before you had funds in your checking account. In the meantime, you owned the gadget you purchased with via a check.

In the pre-day trading days there was a form of risky trading where a person would buy stock, not have to pay (or settle) on the stock for 10 days. However, if the stock moved up in price, the investor could turn around and sell the stock before the settlement date. The idea was to sell the stock for more than it was worth before you had to pay for it. People made money doing this, but obviously it involved a lot of risk.

Day Trading Strategies

Today’s day trader has many different strategies for making a profit on very short term stock trades.

Strategy #1

The most popular method for day trading is to follow trends. This is a tool that is used by all investors and it simply is the concept that stocks moving in a particular direction will continue to do so until other factors cause it to reverse that trend. The idea that stocks that have been going up will continue to go up and stocks that have been going down will continue to go down is a tried and true method for managing purchases and sales. Obviously, this isn’t always the case, which makes trend following a dangerous method to base all of your day trading investments on.

Strategy #2

Another strategy used by day traders is referred to as “range trading.” This is the practice of buying and selling stocks once they reach their respective highs and lows. This strategy is based upon the movement of a stock up or down until it reaches a new high or low for the day.

Strategy #3

A third strategy for day trading involves buying and selling stocks based upon news. This kind of trading is very prevalent during quarterly announcements. Day traders will speculate on the news being good or bad and make their trades accordingly.  If they think the news will be good, they buy.  But if they think it will be bad, they sell.

The Final Word On Day Trading

Of course, none of these techniques are guaranteed.  But a day trader who is able to establish and follow their own rules for selling a block of stock will profit from due diligence.  The hard part is sticking to the plan and eliminating emotion from the equation.