What is day trading? It is the purchasing and selling of financial instruments within the same trading day. These instruments can be stocks, currencies or futures contracts. For example, day traders perform day trading by buying and selling stocks rapidly on the same day. They are more focused on the buying and selling rather than the bottom line. By the end of the trading day, all stocks bought must be sold whether they result in any profits or not. Obviously, this method of investment is very risky.
The day traders hope to make some quick profits by counting on the value of the stocks to rise or fall during the short period of time when they are holding the stocks. Some people feel that this is not wise as it goes against conventional wisdom of letting the profit run. However, this helps day traders to avoid price gaps risk which is the difference between the closing price of the last trading day and the opening price of the following trading day.
Although, day trading involves a lot of risks, it does, however, offer many benefits that have attracted many people to it. Two major benefits that are very appealing, especially to those who have made big losses before, are quick exit to losses and immediate results.
Many traders lose money big time because they hold onto a loosing stock hoping that it will rise. However, day traders can avoid this problem because day trading will force a quick trade that will keep the trader from sitting it out to see if the stock will rise again. As a result, losses are kept low because of this strategy.
It helps in many ways to be able to see immediate results. Firstly, this reduces the constant worry of when to buy or sell. Immediate results will also help a trader to tighten their skills and become more efficient.
When real money is at stake, emotions will come into play. Therefore, you need to maintain discipline in order to be successful. The more disciplined you are in trading, the more profits you will be making in the longer term. Because of this, traders who have learned to control their emotions and trade more objectively tend to be more successful.
Successful traders know the importance of protecting their accounts. They are aware of the risks involved and usually trade no more than 2% of their capital. If you are too aggressive and risk too much per trade, then you are at risk of blowing your account. However, if your trade is too conservative, you will not get optimal returns from your investments.
Learn from your losses - take advantage of each loss to improve your knowledge of the market. Most successful day traders have a true love or passion about their trading activities.
Day trading can be good for some people and not so for others. The choice is up to the individual trader. The benefits and risks should be carefully weighed and the decision made upon an educated knowledge of day trading.