Definition
Day trading is an activity which involves buy and sell of some financial instruments within same day in order to earn profits. Financial instruments which are being traded on the daily basis are stocks, futures, currencies, gold and silver etc and the person who takes part in all these day trading activities is called day trader.
Day trading can be categorized as follows:
The day trading activities can be categorized as, “chart-based technical analysis” or it can be, “following the herd.” In chart based technical analysis prices and patterns of different stocks play an important role and the patterns help in suggesting the future price changes in a particular stock. Some day traders try to stick to one or two particular chart based strategies in which they feel comfortable while there are some day traders who look for different opportunities by simply following the herd and piling into a popular stock for no reason because others are investing in it.
Benefits of day trading
Day trading is a game in which who plays it is his own boss so he/she is accountable to their respective profits and losses. It is a cheaper mode to earn money in stock market as there are no undue expenses involved in day trading, the only thing one needs is an online trading account and an access to internet to do the financial transactions. The greatest advantage in day trading is that brokers are not involved in that and one can take his/her own decisions according to the will. Day trading along with the help of technology is doing wonders because a person can send any request for execution with the help of internet and the confirmation of the execution will be given to him in just few seconds. Day trading is an easy mode and proves to be a good side business as there is no time boundation involved in it, one can do it according to his/her own convenience by just keeping an eye on the stock market as and when he/she gets time. With the help of internet it’s easy for day traders to have control on trading activities and hence they turn out to be their own brokers. For every day trader prime strategy for day trading should focus on how to earn money consistently on daily basis.
Risks involved in day trading
We all know that every coin has its two sides i.e. head and tail similarly, day trading is having its two sides i.e. either it can be highly profitable or highly unprofitable. So a good trader should always keep in his mind the risk factors involved in day trading because in few seconds if he can become the king by earning profits at the same time he can also become a beggar due to huge losses. All the transactions done in day trading should be planned properly and not in haste. An unsound trading plan can be harmful in day trading so a day trader should be aware of stops which should always protect him when he is on lower side or to lock in the profits when he is on the upper side. In order to minimize the risk in day trading it is very important for a day trader to move with trend of the market and do not even try to go against it because at the end of the day market trend is always right which can be also justified by a saying that it is always easy to swim along the river rather than across it. To be on the safer side a day trader should try to avoid investing in the stock with low average daily volumes as the move of such kind of stocks is highly unpredictable and can lead to huge losses if not taken care off. A close watch on supply and demand of stocks is very important in day trading because more demand and less supply means that the price of the particular stock is going to be high and if more supply and less demand price is going to come down, this is the law of price elasticity which needs to be kept in mind in order to defend oneself from huge losses.