What is day trading?
Once upon a time, it was just traders within large financial institutions who could take this quick-win (or lose) approach. But technological advances and the rise of online trading means that the markets are now available to everyone to trade currencies and stocks in a matter of seconds, minutes, and hours. But does that mean you should do it?
This is, of course, up to you. But day trading requires a well-informed strategy and will only have a good outcome if approached carefully. It can therefore prove to be a dangerous approach for beginners. So proceed with caution: even the most experienced traders make losses. It’s just the way the cookie crumbles!
KEY TAKEAWAYS
- Day trading is the buying and selling of financial assets with the intention of making a return on the original investment on the same day
- Day trading is for more experienced investors who have a strong understanding of the market
- A day trader will monitor short-term trends in the market and make market predictions and investments accordingly
- You need to have a very objective, cold, and non-emotional approach
- It requires monitoring stock prices by the minute, so needs a lot of commitment to make it a lucrative career
Day trading strategy
Rather than looking at markets through a long-term lens, a day trader will monitor short-term trends in the market and make market predictions and investments accordingly. Day traders will turn to real-world events, for example, to make a decision about what investment to make on that day.
As we know, the news can affect the price of stocks. So if something important happens in the news on a particular day (and since we all know that news can shape the price of stocks), a day trader will find a stock that’s dropped as a result and then resell when it bounces back, seconds, minutes, or hours later. They might also use information — like company performance reports — to project and make predictions about where the stock price is going. However, this is only profitable if the trader does some careful research and has a well informed strategy.
In order to be a successful day trader, you need to have a very objective, cold, and non-emotional approach. It requires a great deal of focus to get it right, as monitoring stock prices by the minute is essential.
Day trading approaches include:
- Scalping is a short-term trading approach where assets are held for a matter of minutes, and maybe even seconds.
- Swinging is a slightly longer approach, where the asset is held throughout the day – but with the intention of selling it when the day closes.
Day trading rules
Whilst there are no specific rules to day trading per se, it is more about your approach to trading in general. Day traders are tracking the movement of assets regularly throughout the day, which means knowledge and focus are key. You should also bear in mind that day trading requires a lot of time and energy in order to become a lucrative career.
How to start day trading
Since technological advances have made the stock market open to everyone, you can start day trading by opening up an account with one of the hundreds of trading platforms out there. If you haven’t got one already, it takes just a matter of minutes to set up. Before you do, keep in mind that day trading is a trading approach that is for the investor with a high risk appetite; you should only do it if the thrill and adrenaline of high risk trading are for you!