Day trading is the practice of active buying and selling of the stocks, options, futures and currencies within a trading day. All trades are completed within a day so that after the closing of market the day trader do no hold any open positions and therefore are not subjected to any overnight risks. The traders trade against very small changes in price of the financial instruments. Day trading is usually a vigorous trading activity requiring high concentration and time during trading hours. Day traders can be grouped into two broad categories as scalpers and momentum traders. Scalpers trade in large quantities completing each trade within seconds or minutes. Most scalpers are usually large financial firms or investors like institutional traders. Momentum traders are usually individual traders who trade according to the stock market trends. The trading volume of momentum traders usually depends on the market condition. Some other popular trading strategies include range trading, news playing and rebate trading.
The first is that the day trader is less exposed to event risk than a long term trader. I get in and out of the market as quickly as possible. I am in the market during primary trading sessions, so my stops are normally filled at or near the specified price. A long term trader may find that an unforeseen event triggers big moves when primary markets are shut, forcing price to gap way beyond protective stops when markets re-open. Minimizing exposure to event risk while trading leveraged instruments is a key benefit of day trading, and why I think it is one of the least risky forms of trading when done properly. Another reason I prefer day trading is that I can work through losing spells more quickly. All trading methods encounter drawdowns when traders have a losing spell. If a typical drawdown for your system spans a period of 10 trades, and the average duration of each trade is 2 weeks, you face drawdown periods averaging twenty weeks. But if you are a day trader completing one trade each day, your average drawdown period is just 10 trading days. If you complete more than one trade per day, the drawdown period is even shorter. It is never pleasant being in drawdown and it is easier to stick to your system if drawdowns are short. Twenty weeks, or more, in a loss situation tests the resolve of any trader.
Day trading is a broad term, encompassing many trading styles. The one thing all day traders have in common is that they are out of their positions at the end of the primary trading session. No open positions are held overnight, at weekends, or even during lightly traded electronic sessions outside primary trading hours. The typical image of a day trader is of a person glued to a screen during long market hours, possibly entering several trades during the course of a day. That is true of many traders, but there are other styes. For example, my own approach is quite different. The biggest problem in day trading is trading costs. A day trader takes many more trades than a long term trader, so obviously costs are higher. Typically trading costs are a combination of brokerage fees and trade slippage. In my experience, trading costs can get out of control if you take too many trades, so I limit myself to one trade per day.
As told earlier, there are a variety of products available for day trading. The most popular ones are the stock and the forex currencies. Others include options like stock options and futures options, and futures like currency futures, stock futures, stock index futures and commodity futures.
The main disadvantage of discretionary trading is the inconsistent results this style of trading can potentially produce. Markets are constantly changing, and the circumstances and factors which may have led to you placing a winning trade yesterday, may not be the same as they are today. A lot of the success of discretionary traders can be attributed to their ability to perceive trade opportunity. However, what may be perceived as the same setup that occurred in the past, may in fact be an entirely different setup upon a more thorough analysis. As humans, we are susceptible to biases that allow us to equally treat all market situations simply because they look similar to past situations. Looks can be deceiving when it comes to market analysis and one must perform careful due diligence to make sure that they are comparing apples to apples.
Finally, I want a strategy to provide a trade on at least 80% of trading days. It is not much use having a great strategy which only provides a trading opportunity once in a blue moon! If your trading plan (a) gives you a trade on 80% of trading days, (b) wins at least 50% of trades, and (c) has an average win twice as large as the average loss, you are in good shape, providing the plan uses a sensible money management scheme. (It is vital to limit the risk in each trade so that a run of losing trades does not take you out of the game.) However, you still have to implement the plan, and that can be harder than it sounds. Simple errors made in the heat of action can have quite an impact on your results. And lapses in trading discipline, where you deliberately stray from your plan, can undermine the efforts of even experienced traders. It is especially tempting to deviate from plan when you have had a few losing trades. I find the best mindset is to look upon my trading as a daily trip to the casino, where I have been granted the right to place just one bet with odds in my favour. Over time, I ought to win, providing I have enough capital to survive short term runs of bad luck. But a casino has many temptations, and I could easily be lured into placing unplanned bets, or changing my standard bet to one that looks better, but has worse odds. Strong self discipline in the adrenaline pumped atmosphere of the gaming rooms is essential.
The first is that the day trader is less exposed to event risk than a long term trader. I get in and out of the market as quickly as possible. I am in the market during primary trading sessions, so my stops are normally filled at or near the specified price. A long term trader may find that an unforeseen event triggers big moves when primary markets are shut, forcing price to gap way beyond protective stops when markets re-open. Minimizing exposure to event risk while trading leveraged instruments is a key benefit of day trading, and why I think it is one of the least risky forms of trading when done properly. Another reason I prefer day trading is that I can work through losing spells more quickly. All trading methods encounter drawdowns when traders have a losing spell. If a typical drawdown for your system spans a period of 10 trades, and the average duration of each trade is 2 weeks, you face drawdown periods averaging twenty weeks. But if you are a day trader completing one trade each day, your average drawdown period is just 10 trading days. If you complete more than one trade per day, the drawdown period is even shorter. It is never pleasant being in drawdown and it is easier to stick to your system if drawdowns are short. Twenty weeks, or more, in a loss situation tests the resolve of any trader.
Day trading is a broad term, encompassing many trading styles. The one thing all day traders have in common is that they are out of their positions at the end of the primary trading session. No open positions are held overnight, at weekends, or even during lightly traded electronic sessions outside primary trading hours. The typical image of a day trader is of a person glued to a screen during long market hours, possibly entering several trades during the course of a day. That is true of many traders, but there are other styes. For example, my own approach is quite different. The biggest problem in day trading is trading costs. A day trader takes many more trades than a long term trader, so obviously costs are higher. Typically trading costs are a combination of brokerage fees and trade slippage. In my experience, trading costs can get out of control if you take too many trades, so I limit myself to one trade per day.
As told earlier, there are a variety of products available for day trading. The most popular ones are the stock and the forex currencies. Others include options like stock options and futures options, and futures like currency futures, stock futures, stock index futures and commodity futures.
The main disadvantage of discretionary trading is the inconsistent results this style of trading can potentially produce. Markets are constantly changing, and the circumstances and factors which may have led to you placing a winning trade yesterday, may not be the same as they are today. A lot of the success of discretionary traders can be attributed to their ability to perceive trade opportunity. However, what may be perceived as the same setup that occurred in the past, may in fact be an entirely different setup upon a more thorough analysis. As humans, we are susceptible to biases that allow us to equally treat all market situations simply because they look similar to past situations. Looks can be deceiving when it comes to market analysis and one must perform careful due diligence to make sure that they are comparing apples to apples.
Finally, I want a strategy to provide a trade on at least 80% of trading days. It is not much use having a great strategy which only provides a trading opportunity once in a blue moon! If your trading plan (a) gives you a trade on 80% of trading days, (b) wins at least 50% of trades, and (c) has an average win twice as large as the average loss, you are in good shape, providing the plan uses a sensible money management scheme. (It is vital to limit the risk in each trade so that a run of losing trades does not take you out of the game.) However, you still have to implement the plan, and that can be harder than it sounds. Simple errors made in the heat of action can have quite an impact on your results. And lapses in trading discipline, where you deliberately stray from your plan, can undermine the efforts of even experienced traders. It is especially tempting to deviate from plan when you have had a few losing trades. I find the best mindset is to look upon my trading as a daily trip to the casino, where I have been granted the right to place just one bet with odds in my favour. Over time, I ought to win, providing I have enough capital to survive short term runs of bad luck. But a casino has many temptations, and I could easily be lured into placing unplanned bets, or changing my standard bet to one that looks better, but has worse odds. Strong self discipline in the adrenaline pumped atmosphere of the gaming rooms is essential.
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Frank Miller has a Debt Consolidation Blog & Finance, these are some of the articles: 10 Negotiation Tactics To Become A Better Negotiator You have full permission to reprint this article provided this box is kept unchanged.
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