The stock market has long attracted business people looking to make a bit of money by taking the right amount of calculated risks. And, for many people, playing the markets has proven extremely lucrative. While there are many different options available to investors, day trading is becoming an increasingly popular choice for both experienced traders and newcomers alike.
What is Day Trading?
In the most basic terms, day trading is a strategy where an investor will buy stocks at the start of the trading day and sell them before the end of the day. Instead of holding stocks for the usual lengthy period, which can range from weeks to months, or even years, day traders are looking to capitalize on rapid changes in prices. This means that they may hold stocks for a few hours, a few minutes, or even a few seconds, before selling them off.
The major U.S. stock markets, the NYSE and the NASDAQ are open from 9:30 AM to 4:30 PM Monday to Friday, except for Public Holidays. There are also some days when the markets will close early, so traders should always keep an updated calendar on hand to make sure they make the most of the hours that they can trade.
What Are the Risks?
While to the untrained eye, it may seem that day trading is less risky than long-term investments, this isn’t the case. Because day traders are focused on short-term market moves, they need to be very deeply in tune with events that may cause the markets to surge or fall. Events such as the announcement of interest rate changes, economic statistics, or corporate earnings are all things that smart day traders will take note of as they usually result in sudden and often significant shifts.
Due to the fairly high-risk nature of day trading, it is important that anyone looking to get started goes in with a well-formulated strategy, a lot of luck, and a keen eye for detail to take advantage of any movements in the market.
How Do I Get Started?
Professional day traders typically have an in-depth knowledge of the field and are often well-established in the field. However, new traders can make good on their investments with a bit of effort. Learning and understanding the fundamentals of how markets work is essential for success, and a working knowledge of how to read and analyze market charts is critical if a day trader is to be successful. On top of this, a decent amount of capital that you are willing to lose as you learn is also needed, along with a good strategy to give you an edge over the competition.
What is the Most Common Strategy?
Day traders use various strategies to make good on any market inefficiencies, but one of the most common strategies is called scalping. This simple strategy sees investors holding stocks for very short amounts of time, most often seconds or minutes, before selling them off. Day traders using this strategy have to closely watch very short-term tick charts to spot predictive price patterns, so they know when to buy and when to sell. But, because the trading time is so short, it is often easier to predict shifts than in other strategies. Many day trading software options also allow traders the opportunity to practice this kind of strategy with demo accounts, so that no real money is lost while the trader is learning.
Day traders need a good strategy, time (to learn), a decent amount of capital, and a lot of luck to make it big in a very competitive field. However, for many people, the risks are well worth the reward at the end of the day.