Intro to day trading for beginners! What is a day trader? A pure day trader buys and sells stocks and ends the trading day in cash with no open positions. A swing trader holds positions overnight or for several days. Most day traders use a blended strategy, where some positions are closed out during the trading day and others are held for a short duration of time.
Day traders use a professional high frequency trading platform through direct access brokers. They connect with high speed internet connections and use a multiple monitor computer system. Day traders use technical stock analysis as the basis for their trading strategy. Day traders have little or no concern about the fundamental strengths or weaknesses of a company. Day traders use charts and data to determine patterns, volumes and price movements. Common technical indicators used are support and resistance levels, MACD, SMA, volatility, price oscillators, Bollinger bands, candlestick patterns and RSI.
Most day traders make money on relatively small price movements in liquid stocks or indexes with mid to high volatility. Positions with higher volatility have higher risk, and higher risk means greater swing potential. Positions with lower volatility have lower risk, and lower risk means lesser swing potential. A successful day trader plans the entry and exit point of a trade before execution. Some trade one to two stocks a day while others trade a small handful of stocks. Successful day traders learn the personalities, or the volatility, of certain stocks under differing market conditions.
Day traders often trade in margin accounts to increase leverage. Since day traders often trade in and out of stocks multiple times a day, this racks up commission costs. Many traders need to borrow money in order to make a profit. In a margin account, you are buying an asset and the buyer only pays a percentage of the asset value and borrows the rest paying interest on the loan.
On average, 10% of day traders are successful and 90% are not.
Successful Day Traders (10%)
1. Study the personalities of a few stocks.
2. Identify entry and exit points before executing a trade.
3. Trade in a sophisticated platform.
4. Watch multiple technical indicators to predict price movements.
5. Sell as soon as the planned exit point is reached.
6. Cut losses ASAP.
7. Trade without emotion.
Unsuccessful Day Traders (90%)
1. Trade any stock as they have no criteria.
2. Buy on impulse and sell out of fear.
3. Watch too many indicators, information overload.
4. Have no plan for the trade.
5. Ride winners into losers out of greed.
6. Trade based on emotion.
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