Day Trading involves taking a position in the markets with a view of squaring that position before the end of that day. A day trader typically trades several times a day looking for fractions of a point to a few points per trade, but who close out all their positions by day's end. The goal of a day trader is to capitalize on price movement within one trading day. Unlike investors, a day trader may hold positions for only a few seconds or minutes, and never overnight. Real day trading means not holding on to your stock positions beyond the current trading day; in other words, not holding any position overnight. This is really the safest way to do day trading because you are not exposed to the potential losses that can occur when the stock market is closed due to news that can affect the prices of your stocks.
Day trading can be further subdivided into a number of styles:
1. Scalpers: This style of day trading involves the rapid and repeated buying and selling of a large volume of stocks within seconds or minutes. The objective is to earn a small per share profit on each transaction while minimizing the risk.
2. Momentum Traders: This style of day trading involves identifying and trading stocks that are in a moving pattern during the day, in an attempt to buy such stocks at bottoms and sell at tops.
Advantages of Day Trading
1. Zero Overnight Risk: Since positions are closed prior to the end of the trading day, news and events that affect the next trading day's opening prices do not effect your portfolio.
2. Increased Leverage: Day Traders have a greater leverage on their trading capital because of low margin requirements as their trades that are closed in the same market day. This increased leverage can increase your profits if used wisely.
3. Profit in any market direction: Day trading often will utilize short-selling to take advantage of declining stock prices. The ability to lock in profits even as markets fall throughout the trading day is extremely useful during bear market conditions.
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