• Day Trading

    Day trading is the buying and selling of financial instruments within the same day with the goal of closing the trade at a profit. If you day trade, you will most likely exit your position before the market closes as opposed to holding over till the market reopens (swing trading). Day trading is a big subject for one article, so I will try to cover the basics. As with all things, entering through the first door is preferable, walk before you run. Master the basics – there will be plenty of time for the more complicated aspects and advanced styles of day trading later.

    Day traders most often trade: stocks, stock options, currencies, all kinds of futures contracts (currencies, commodity, interest rates futures).

    Not too long ago, day traders were mainly professional traders who spent their days in a financial firm’s day trading rooms. But today, anyone with a computer can day trade and it is very popular. You can sit in a park or your home office, choose your own hours and be your own boss.

    Styles and Types of Day Trading

    Some day traders like to make “scalp” trades, only holding their position for a few minutes or less, trying to capture quick gains.

    Some day traders like to hold their trades all day, waiting for maximum gains.

    Some day traders like to place “trend” trades, where they place trades according to the price movement, in efforts to capture gains in the direction of movement.

    “Counter-trend” trades are the opposite, against the direction of prevailing price movement.

    “Ranging” trades go back and forth between two price points, most often used when the market is trading in a sideways fashion.

    Day Trading is Personalized

    While day traders can and do use multiple trading styles, generally they stick to the one they have been most successful with, while taking into account current market conditions. Also, there are other highly personalized and self-imposed rules day traders adhere to, such as: only day trading once or twice per day, only trading during specific time periods throughout the day or only on certain days of the week. Many day traders enjoy making their livelihood by only trading in the mornings and having every afternoon free. It’s strictly a personal choice.

    Day traders insist on quick executions and the best live data they can get. Great day trading tools are a must and at the top of the list is high quality trading software (TradeStation can’t be beat).

    Discipline

    Day traders need to be incredibly disciplined. Fear and greed will make a failure out of you in a quick hurry. Calm, patient and confident behavior is necessary. There is no place for a nervous investor in the world of day trading. You have to do what you have to do to be successful, and if that means reprogramming your natural instincts while you day trade, then that’s what it takes. You need a plan when you day trade and you must stick with it, while being flexible and highly efficient at the same time. Hesitation and second-guessing will also prove to be your downfall. There is no worse feeling than seeing what was a winning trade turn into a loser because you lost confidence.

    Successful day traders have learned to control their emotions. You must work at it. It doesn’t come naturally to most people, but it is so worthwhile if you can master and control your emotions and become a fierce executioner.

    Paper-trading in simulation (Think or Swim offers a marvelous setup) for practice is imperative.

    Government Restrictions on Day Trading

    The SEC (Securities and Exchange Commission) has placed certain restrictions on day trading now that it has become so popular. You must have a minimum of $25,000 in your broker account to day trade US stocks (defined as opening and closing the trade in the same day). Less than that amount requires the position be held overnight, so theoretically, it is not day trading. These rules however only apply to US stock markets and not to the futures or currency markets.

    Day trading is yet another way to expand your investment horizon. If you want to be successful, you certainly can be.

    © 2011, www.daytraderoptions.com. All rights reserved.

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