What Is Day Trading?

Perhaps one of the reasons why a better understanding of day trading remains elusive is because at one point it was pretty much exclusive to larger financial establishments and the big wheels in investing and speculating. In recent times, due to the availability of electronic (online) trading, more and more investors are becoming involved in day trading. Because of this, day trading is now popular among investors who make transactions from the comfort of their homes. So then, what is day trading? Actually, the name probably gives it away, but here is some information on day trading that might make it a little easier to understand.

Basic Concept of Day Trading
For all intents and purposes, day trading simply means completing a trade (buying and selling) within the very same day. As a result, all positions are supposed to be closed prior to the market closing on that trading day. There are a couple names by which this type of trader is referred to. Of course they are called ‘Day Traders,’ but they are also referred to as ‘Active Traders.’ Day trading usually involves such transactions as buying and selling stocks, options, futures contracts and stock options.

Common Day Trading Strategies
Since all transactions need to be concluded within a single day, there are a few strategies that work better than others. Any short term trading strategy that holds positions for mere seconds or minutes, such as in scalping, are ideal for day trading. Sometimes day traders use swing or position trading in which their positions could be held throughout the day. One of the advantages of day trading is in the amount of flexibility it affords. In fact, open positions can be held for a few hours or may only be held a few minutes. Everything depends on how the trade is going and whether or not that particular trade is in the profit margin.

Trend Trading and Counter-Trend Trading
Another of the advantages of day trading is that since all transactions are concluded during the same trading day it is easier to trade with the trends. Some people like to buy as the prices are moving up (Trend Trading) while others like to sell when the prices are moving up (Counter-trend Trading). Most often day traders find one style that they like and will stick with it. In other words, most day traders will either be trend traders or counter-trend traders and it is unusual to see a day trader alter his/her style.

Choosing Your Style
Some day traders like to make many trades within the course of a single day while others simply make one or two. You will find that most day traders tend to stick with both the strategies they choose along with the numbers of trades they make each day. It is rare to find a day trader that will make several trades one day and only one or two the next. Just as some traders stick with trend or counter-trend strategies, others choose whether or not to trade often throughout the day. When you become active in day trading you will find that you develop strategies that work best for you as well as the frequency in which you trade.

In trying to understand day trading, it all boils down to the fact that transactions are made on the market all in a single day. Whether it is a stock, currency or futures contract it is both bought and sold before the close of that trading day and the person making the trade is called a day trader. For anyone who likes fast paced active trading, day trading provides the outlet they are looking for.

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