When it comes to day trading, sometimes the illusion of what this type of investing can offer outweighs the reality of what knowledge and experience you need to pull off a long term successful trading campaign. Day trading is a viable option for many extremely talented traders, but you also need to be fully aware of what some of the risks are before jumping in. After all, even many experienced market specialists have thrived in normal conditions only to get tripped up by the new and unique challenges that conventional day trading creates.
So what exactly is day trading?
This is the practice of trading one of the securities markets. This could be the stock market, commodities markets, or even the currency (Forex) market. The main distinction here is that instead of looking at long term trends and movements, every trading position is opened and closed on the same trading day.
This means even with the almost always Forex market that no position can last 2 hours and the truth is that most trades will last shorter than that. The idea is to take advantage of the many jumps in value and prices throughout the day to buy low and sell high, making profits over those mini transactions. In Forex this is often referred to as scalping, and is most profitable when major leverage can be used to get the most out of even the smallest changes in pricing.
Day trading has exploded with the advancement in computer and Internet technology. By being able to keep up with the constantly moving prices and volume trading in real time, traders now can open and close positions faster than ever before. This is in addition to having the information needed to see not only overall trends but also to catch any potential chart patterns even by the minute or by the hour.
Having all of this information available makes it much easier to choose a potentially profitable position multiple times a day and making a profit based on the end of those results all tied together at the end of the day.
However it’s still important to remember a few things before trying the allure of independently working as a day trader.
- Day trading is still speculation – meaning a lot of educated guesses. You need a deep bank roll and a good long term percentage to come out ahead.
- You need to pay attention to every fee and all terms. Even the smallest differences in cost per transaction or your average entry and exit prices can make the difference between profit and going broke.
- Don’t start without extensive training in a mock trading program. Almost every online trading platform has the ability to create a practice account that uses real time reports and numbers so you can mock trade to see if you’ve got a handle on this or not.
Keep these points in mind and you may find that day trading does end up being for you.