First of all, what is day trading? Day trading is a fast-moving trading type in which one buys and sells securities in a single day. The goal is to profit from short-term fluctuations in assets’ prices. Day traders usually put various strategies and types of analysis together.
Some of these include technical analysis, which uses previous prices and patterns of trading to speculate on future trends and momentum investing, which uses short-term trends and reversals to generate revenue quickly.
As opposed to longer term traders, day traders aren’t as interested in the intrinsic value of securities and are more into generating quick revenue from market volatility.
How day trading works
Day traders usually target stocks, options, futures, commodities and forex currencies. They are called this because they open and close positions during the same day. Also, they close positions after holding them for hours, minutes or seconds. They almost never hold a position overnight.
The goal is to profit from short-term price movements. Alavancagem is another way that day traders can use to generate revenue. However, leverage can increase losses as well.
Setting stop-loss and take-profit orders and only risking what you can afford to lose are some steps to take to survive as a day investor. Experienced traders usually risk no more than 1% of their account on a single transaction.
The volume of trades made by day traders range from tens to hundreds based on the trading strategy used. Some day traders use computers to make tens of thousands of individual trades in a single day because of algorithmic and high-frequency trading (HFT) systems.
Why do traders choose day trading?
Traders are attracted to day trading because it generates revenue quickly. However, it can be risky and requires being familiar with how the markets work.
Successful day traders are usually good at:
Staying informed:
They monitor news in the market, economic announcements and other things that influence the price of the stock and other assets during the day.
Making quick decisions:
Day traders are able to make fast, well-thought decisions in an uncertain market.
Using leverage:
They use borrowed funds to increase their potential to generate revenue. For all these reasons, day trading is not a fit for everyone or people or for people without enough capital or knowledge.
Can you make a living as a day investor?
Whether you day trade for a company like a hedge fund or a bank or as an independent investor, it is something significant that can affect your ability to earn and the duration of your career. Institutional traders have more capital and invest with company funds and not their own.
Although they require them to risk their own money, some independent trading firms let day traders use their platforms and software.
Factors affecting a day investor’s earnings
The potential earnings of a day investor may also be influenced by other significant factors including:
Markets you trade:
The value of investing across markets varies. Stocks typically require the most capital. Unlike other asset classes like futures or forex, traders may start trading shares with a smaller amount of capital.
Available capital:
Your potential to earn is much lower if you start investing $3,000 instead of $30,000.
Time:
Day traders rarely succeed in days or weeks. Developing successful investing methods, strategies and techniques takes years.
Is it profitable to day trade?
The various trading strategies, risk management techniques and capital used, all affect the income of a short-term investor. Day traders open and close their positions in one day, whatever the asset is, https://www.t4trade.com/pr/markets/shares/, options, futures, commodities or forex currencies. They often experience losses since most of them have non-diversified portfolios and trade actively and speculatively.
Day traders also experience high brokerage fees. Therefore, having a solid trading plan with appropriate risk management and selecting a reliable broker is crucial.
How to start day trading
Day trading is different from regular trading. While anyone with a little money can buy stocks and hold them for months or years, day trading requires a more active approach.
The Financial Industry Regulatory Authority (FINRA) oversees pattern day traders which are people making 4+ day trades in 5 business days. These traders should have at least $25,000 in their accounts. If they fall below this amount, they are no longer allowed to invest.
This means that day traders need to have extra capital other than the $25,000 in order to generate revenue. Short-term investing also requires focus, meaning that it is hard to do alongside a full-time job.
Day traders must be willing to risk their capital. They will also need access to a CFD broker, a trading platform, research material and tools to track their trades. Broker commissions and short-term earnings taxes are extra expenses.
Before starting, potential day traders must take into account all expenses to determine whether they can be successful.
Limitations of day trading vs trading
In the more traditional sense, trading does not mean day trading. While investing is a broad term, it is most often believed that generating steady revenue over time happens when buying and holding assets for the long term.
Long-term traders do not go through the same emotional roller-coaster that day traders do, even when their transactions grow. Also, traders with long-term strategies are able to diversify their portfolios which reduces the risk of substantial losses. Day traders focus on a few hot stocks, so any movement in these stocks impacts their financial situation a bit more.
Is it a good idea to invest on daily basis?
Depending on how well the stock market performs, day trading could be a good idea. It is essentially exploiting the short-term fluctuations, or price movements, of a stock for any given day.
Day traders tend to buy and sell stocks within the same day, closing out the position before the market closes with the aim of purchasing at the day’s lowest price. They may have short-term gains if the stock price increases while they own it or they might experience a short-term loss when the price decreases.
On the other hand, day trading could be a bad idea when taking into account transaction costs.
Considerações finais
There are some risks and limitations in short-term investing despite its high earning potential. These include high financial losses, psychological tension, restricted access to the market and time requirement.
While day trading, day traders need to be extremely focused and keep an eye on open as well as potential trades each trading day. Although price reminders and algorithms are helpful for day traders, time is still required.
Short-term investing is not a pastime or an occasional activity, but rather a way to potentially generate successful trades. In fact, day trading earnings are hard to come by.
However, there are techniques you can learn to help you be successful while reducing losses, even though there is no assurance that you will always be able to earn or predict your average return over any given time frame.
Becoming a successful day trader requires risk management, patience, capital, discipline and training. Carefully select the forex broker you want to work with based on your trading requirements and needs.
Aviso legal: Esta informação não deverá ser considerada como aconselhamento ou recomendação ao investimento, mas apenas como comunicação de marketing.
