Some traders who are new to the trading business, are eager to earn a big chunk of money in small time duration.
So for those who are passionate about trading and earning money with their market knowledge, day trading is the best option.
It is, as the name implies only works for a single day. The next day, a new trade is placed.
In earlier times, only those people who were able to do day trading were associated with big financial organizations or trading companies.
But with the advancement of the internet, it has become relatively easy for an individual to do day trading. It is also known as active trading as one has to close his position by the end of the day.
This trading is best for the passionate traders who do trading not for just fun but for their livelihood.
So let us discuss:
What is Day Trading?
IntraDay trading technique in which a trader invests his capital for a single day in different assets and makes a profit due to market volatility and closes his position on the same day.
It is also known as active trading as whatever the losses or the gains, one has to close all the positions by the end of the day.
This trading involves high leverages, and the trader should be highly disciplined to achieve his goal in a single day.
A day trader is required to have knowledge of all the technical indicators and have done fundamental analysis before investing in any commodity or stock.
Because it becomes quite difficult to change strategy for a day trader as the time span of trading is just a single day.
A day trader has to be argus-eyed when it comes to any news. As the news directly influences the market sentiments and a day trader can make a profit from even a small fluctuation.
Techniques Employed in Day Trading –
- A day trader places a number of trades in a highly liquid market and makes small profits from them to collectively gain a large profit. This technique is the scalping technique.
- Selling and buying of stocks and commodities are governed by support and resistance levels.
As the prices move towards their extremes, one can make up his mind whether he wants to buy a commodity or sell a commodity. This is also known as range trading.
- In Intraday trading, most of the trade is governed by the news and market volatility. The most liquid market is the most volatile and the profit is also big.
There are certain pros and cons of being a day trader, let us discuss them one by one.
Advantages –
- No need to worry about overnight market fluctuations and risks to earnings.
- Compounding money is very fast as one can use his money earned on the previous day to invest in a new trade the next day.
- In cash positions, there is interest rewarded to the trader. I.e. one can earn interest if he is closing his position on cash. This interest is available on specific trades, not on all.
- One can make quick money using leverages. Leverage means one can buy additional shares of a company with a brokerage account. For example, if a brokerage company is providing a brokerage of 5:1 and a person has $10,000, then he can buy shares for up to $50.000.
Using brokerage in Intraday trading is extremely dangerous as one may lose all of his money as the share falls.
- While performing day trading, one need not work all day. This means if a day trader has achieved what he desired, then he can take off for the rest of the day.
- A day trader need not have to own an office; rather, he can work from anywhere in the world and enjoy his trading.
Disadvantages –
- Understanding day trading is a stressful process as it employs a learning curve. Learning takes time, and there is no time in day trading.
- The results that we desired are time-consuming.
- A thorough analysis is needed before investing in any trade as it might not result in the desired output at the end of the day.
- One cannot control his emotion when his profile suffers a loss. As the price fluctuates, the feelings also vary as doubts about decisions.
- A trader has to be much more disciplined as he places a number of trades on a single day, so he has to monitor all of them and make a trading plan accordingly. If the trades are not aligned with the trade rule that the trader predefined, then the loss is confirmed.
- When a day trader plays high-frequency trading, then he is susceptible to losses.
- A trader can lose all of his money in a fraction of seconds if he does not employ any risk management plan like stop-loss orders.More article https://preposting.com/
Bottom line –
Day trading involves all the trades to be performed on a single day. So one should be very careful in placing the right trade because one wrong decision can ruin all of your trading careers.
