WHAT IS DAY TRADING

Day trading is defined as the purchase and sale of a security within a single trading day. Day Traders use short-term trading strategies to capitalize on short term momentum price action in highly liquid stocks or currencies.

KEY TAKEAWAYS


  • Day traders are active traders who execute intraday strategies to profit off price changes for any given stock.

  • Day trading employs a wide variety of techniques and strategies to capitalize on perceived market inefficiencies.

  • Day trading is often characterized by technical analysis and requires a high degree of self-discipline, market knowledge and strategy.

 

Day Trading Example: If you open a new position at 6:30 AM and close it by 11:00 AM on the same day, you have completed a day trade. If you were to close that same position the following morning, it would no longer be considered a day trade.

 

THE BASICS OF DAY TRADING

Day trading works by capitalizing on short-term price movements in a stock through the active buying and selling of shares.

Day traders seek volatility in the market.  Without short term price movement (volatility) there is no opportunity. The more a stock moves, the more profit a trader can make or lose in a single trade.

Day traders use numerous intraday strategies. These strategies include:

  • Scalping - which attempts to make numerous small profits on small prices changes throughout the day.

  • Range trading - which primarily uses support and resistance levels to determine their buy and sell decisions.

  • News-based trading - which typically seizes trading opportunities from the heightened volatility around news events.

  • Momentum trading - trading momentum is a strategy in which investors buy securities that are rising with momentum and sell them when they have peaked and momentum is fading.

Successful traders will often have set entry and exit points before even entering a trade.

This helps take emotion out of the trade, which in return keeps the trader from over managing their position (proven to have a negative impact in the long run).

 

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