16 Jun Day Trading
Rather than wait on a long-term investment, many people have taken to day trading in order to make some quick cash. Traders buy and sell securities all within the same day. This helps them make a small profit when the price fluctuates slightly. The process is primarily done online.
Day Traders Vs. Swing Traders
Day traders and swing traders both have many similarities. The largest difference is in the amount of time provided for the trading each one does.
A day trader starts each day with certain investments, and closes them all out by the time their day is over. There is nothing left overnight to make a big change. Swing traders, on the other hand, let some of their investments take time to grow and change. Rather than rushing to make decisions each day, some let their investments go for a few days, or even a few weeks. Actual investors are those that leave their stocks for months at a time or longer.
What to Look For
Not just any stock works for a day trade. There are certain characteristics traders should look for in order to make the most of the market. Volatility is the first characteristic. This simply refers to the statistical measure of price. Past prices and current ranges should all be taken into consideration. A high volatility means higher profit margins. Liquidity is the second characteristic. This references the pace in which a stock can be bought or sold, and the ability to do so easily.
Many day traders implement certain strategies in order to make better profits. These strategies need to be followed carefully. There are at least four strategies that can be used.
The first is scalping. Scalping means selling the asset as soon as any profit has been made. The profit may be small, but it is still something. Fading involves selling stocks and then buying them back when the price decreases. This is known as shorting stocks. Daily pivots are the third strategy. Stocks are bought at the lowest point and sold at the highest. Momentum refers to following the strongest trend movements. When the volume of buy-ins finally starts to decrease, that is the time to get out.
Setting a Stop-Loss
Even after checking for the right characteristics and following trends, not all stocks are going to earn a profit. It is important for each trader to set a stop-loss that will automatically close out accounts before a loss is reached. This is essentially the amount each person is willing to reach before they pull out. Not everyone has to physically set the loss. It is just important that a stop-loss point is thought about and followed. It helps to lower the amount of risk.
Day trading takes a lot of patience and concentration. It often involves sitting at the computer for hours on end, watching as stocks rise and fall. The market has to be watched closely in order for traders to close out at the right time.