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What is Day Trading? Day Trading VS Investing
from: Michael TaylorWhat is Day Trading? Have you heard of day traders? These are
people who reap profits from Wall Street day in day out. They do
nothing but trade, they answer to no one but themselves. Day
trading is their livelihood, their bread and butter. Day trading
is profit driven. If you have aims other than making money from
the markets, you are probably reading the wrong article. This is
not an article for gamblers who seek short term thrills in the
markets, nor is it meant to be a theorectical exposition on day
trading for academic researchers.
Why day trade? Is it worth the effort? Day trading offers the
road to financial freedom. The day trader is independent. He is
free from the office routine, not restraint by time or place, he
works when and where he fancies. This is the power of day
trading!
What does it takes? You don't need to be extremely smart to be
successful in day trading. The most successful day traders are
those who have the iron-resolve and solid discipline.
Intelligence is certainly welcomed, but is not an essential
criterion for success. I was never the top in my class and
always scrapped through my exams. SO WHAT? I am making big bucks
by just trading a few hours per day.
Don't get me wrong, I am not profitable from day one. This
article does not offer another get rich fast campaign. It took
me almost one year of daily trading to reach where I am now.
Constantly revising and researching on various methods finally
paid off. It is hard work and you are not going to get any
richer just by just reading and not practicing. Can you drive a
car just by reading the manual? You have to practice what you
learn. I hope you can learn something from this article to
jumpstart your trading.
Day Trading VS Investing There is a distinct difference between
day trading and investing. The main difference is the time frame
and methodology used. Investing requires a much longer time
frame than trading, from months to years to decades. Usually you
want to select a good company that will not go bankrupt the next
day you purchase it. You will also want to analyze the
fundamentals of the companies, make sure it is in good financial
health and has a competitive advantage relative to other
companies in the industry.
Trading takes a different approach to making money. The time
frame considered is short from a few minutes to hours to days,
weeks or maybe a month. Specifically, day trading refers to
strictly trading within the day. This means that you do not hold
positions overnight. For example, if you buy at 10:00 (EST), you
have to sell before 16:15(EST) when the market closes.
There are no rules against holding overnight but risk is
minimized if trading is strictly restricted to within the day.
The market often moves in reaction to news when exchanges are
closed. Stocks usually do not have much liquidity and trade on
light volume after market hours. Imagine what would happen to
your long position when there is a sudden hurricane strike when
market is closed. The market will drop but you might not be able
to sell at a reasonable price due to low volume. I sleep better
at night when I know have no open positions overnight. Whatever
losses and winnings are strictly during market hours when there
is enough volume to trade. How the market moves after the
closing bell does not affect me and I start the next day with a
new state of mind.
About the author:
Michael Taylor is a professional trader and webmaster of
www.daytradeemini.com He regular updates his trading blog at
www.daytradeemini.com/blog with educational articles and trading
records.
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