A Basic Guide to Day Trading
Day trading is simply buying and selling stocks on the same trading day. Before the market closes for the trading day, most trading positions are closed.
Day trading is different from after-hours trading in that it is confined to the open hours of the stock exchange; trading that continues after regular hours is after-hours trading.
If you buy and sell stocks during the trading day, then you are a day trader. You might be imagining day trading as something very hectic. In actual practice, this may not be so. There are traders who make a few trades a day and others even limit themselves to one trade.
You may even just buy a stock on one day and sell it on the next day if you think that it is not profitable to sell it on the same day. You don’t need to finish off your trading activity on the same day since there are no legal restrictions on this. You may have to pay some differential on brokerage if you carry your trade to the next day.
In the usual practice, traders close their trading positions by the end of the same trading day. Your trading strategy for the day determines you trading frequency; it may also depend on your general trading style and outlook.
Short term trading is done by some traders. Some traders finish off their trades in a matter of minute or seconds. These are the trades who have a high frequency of trades during the day and they consist of high volume trades. Brokers love this kind of volume trading and so the trader is rewarded with big discounts on commissions.
There are others, though, that do not want reduced brokerages. What they focus on is momentum or trends of stock movement so they don’t do fast trading. Sometimes there are really strong trades during the day and this is what these types of traders look for. During the trading day, they only make a few trades.
There are traders who make sure that their stock are sole at the close of the market day since they want to avoid the risk the comes from the price gap between the closing price on the day they bought the stock and its opening price the next day. Many follow this practice religiously treating it as their golden rule.
There are also those who stay with the position even after the market closes believing in allowing profits to run.
IN a matter of minutes or at the end of a trading day traders can make quick profit and quick losses. Although you might think that day trading is like gambling, there is a marked difference between the two. Day trading involves serious understanding of the process of trading while gambling does not allow you to make calculated moves or intelligent strategies.