Day Trading involves taking a position in the markets with a view of
squaring that position before the end of that day.
A day trader typically trades several times a day looking for fractions of
a point to a few points per trade, but who close out all their positions by
day's end.
The goal of a day trader is to capitalize on price movement within one
trading day.
Unlike investors, a day trader may hold positions for only a few seconds
or minutes, and never overnight.
What day trading really means.
The term "day trading" is a widely misused and misunderstood term. Real day
trading means not holding on to your stock positions beyond the current
trading day; in other words, not holding any position overnight. This is
really the safest way to do day trading because you are not exposed to the
potential losses that can occur when the stock market is closed due to news
that can affect the prices of your stocks.
Unfortunately, many people who claim to be "day trading," hold stocks
overnight because of fear or greed, thus setting themselves up for the
catastrophic elimination of their capital. When day trading currencies, the
term "day trading" changes slightly. Since currencies can be traded
24-hours-a-day, there is no such thing as "overnight" trading. Thus, you can
have open positions for longer than a day with active stop losses that can be
activated at any time.
Day trading can be further subdivided into a number of styles,
including:
Scalpers: This style of day trading involves the rapid and repeated buying
and selling of a large volume of stocks within seconds or minutes. The
objective is to earn a small per share profit on each transaction while
minimizing the risk.
Momentum Traders: This style of day trading involves identifying and
trading stocks that are in a moving pattern during the day, in an attempt to
buy such stocks at bottoms and sell at tops.
Advantages of Day Trading
Zero Overnight Risk: Since positions are closed prior to the end of the
trading day, news and events that affect the next trading day's opening prices
do not effect your portfolio.
Increased Leverage: Day Traders have a greater leverage on their trading
capital because of low margin requirements as their trades that are closed in
the same market day. This increased leverage can increase your profits if used
wisely.
Profit in any market direction: Day trading often will utilize
short-selling to take advantage of declining stock prices. The ability to lock
in profits even as markets fall throughout the trading day is extremely useful
during bear market conditions
