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WHAT IS DAY TRADING?

Day Trading

If you are reading this article you may have already know about the exciting financial and personal rewards of day trading. Day trading is the buying  and selling of a financial instrument within the same day, or even multiple times over a day. It can be a profitable game to take advantage of small price moves — if it is played correctly. But for newbies or someone who does not stick to a well-thought-out plan, it can be a dangerous game. You are curious about the fascinating tales of great monetary rewards and excited by the prospect of working from home. But you may also be aware of the disappointing story about people losing huge amount.

Day Trading Psychology
Day Trading Psychology
What Is Day Trading?

In brief, day trading refers to transactions performed on financial securities within a time-restricted period of one trading day on the market. Put most plainly, it is the buying and selling of securities, which for the purposes of simplicity in the demonstration of this article, we will focus exclusively on stocks (but know that there are a variety of trading options, currencies, and futures) limited only to the course of one trading day so that no open positions are held overnight.

How To Start Day Trading

You'll probably need to do some work and planning if you want to start trading on a day. Here's some information to help you get into the day trading game.

(1) Learn The Market

Make sure you understand what you're (literally) signing up for before you spend one dollar in day trading. A general knowledge of the stock market is not enough; you need to understand how volatility can be influenced by world events, how trades operate, how various industries respond, and how fluctuations can be expected. Many day-traders are trained in a particular industry.

(2) Develop A Strategy

There are several different day-trading approaches, and online courses and guides can help you understand the operation, technique and risk / return. The analysis of real trades and techniques begins. You may consider a counter-strategy, or even a pattern to pursue. Only know that speculation is the basis of all trading forms. Online, you can find many free resources to watch live trades, study stock charts and trends and read financial analysis. How are you going to treat the trade? How much are you willing to risk when you would sell, how would you determine if you used your trading strategy?

(3) Setup Virtual Account

Set up a virtual account to learn the ropes, before you start risking real money. You can buy and sell in real time but in a safe space as you learn more about market reading, trends and fluctuations, how much to risk and where. Practice, work out, practice. In a virtual setting, you can build, fine-tune and perfect your strategy that will not cost you your house if you do wrong. Keep your plan tested before you feel comfortable.

(4) Set Target And Know Your Limits 

Set up a virtual account to learn the ropes, before you start risking real money. You can buy and sell in real time but in a safe space as you learn more about market reading, trends and fluctuations, how much to risk and where. Practice, work out, practice. In a virtual setting, you can build, fine-tune and perfect your strategy that will not cost you your house if you do wrong. Keep your plan tested before you feel comfortable.

You need to set a realistic limit on the money you are willing to spend on day trading especially at the beginning. Whether it's money you can't afford to lose, so it may not be day-trading for you. Because of an unforeseen event no strategy or investment methodology will protect you from a stock market implosion. The promise of the win can be intoxicating much like gambling, but it can also be a siren song to bankruptcy and foreclosure. Many are the people who tried to trade their way out of a hole, just to panic, stop reading the market (or finding that they couldn't) and find themselves in a much larger hole.

(5) Tax Implications

Speak to your financial planner, accountant or tax expert to find out how day earnings are handled at the time of taxes, so you don't have a nasty tax bill that eats up all your gains. Tax treatment in many countries can depend on whether you're seen as a "investor" or a "trader" who does this for a living. Laws can exist about the length of time between trades, how capital gains and losses are handled, and what defines you as a skilled day trader. You should consult a tax professional who can help you determine where your activities fit, and which rates are applicable.

(6) Broker

Any day-trading operation is carried out through an investment network, and this is one of the most critical steps you can take before you start day-to-day business. This broker will not only be responsible for your account, but you will be conducting your trades across their trading network and it needs to be accurate when timing matters. Reputation and know-how are significant, so take the time to find the best match for you and your goals.

Day Trading For Beginners

When beginning a job, when you're a day trading novice, there's a lot to know. You will not only need to decide when to exchange and how much capital you will need, but you will also need to get the right equipment and software, assess when to exchange, and, of course, how to handle the risk. Using the variety of tools available to you is the perfect way to understand the fundamentals. Those include business academies, courses, and tools like applications for trading.

Picking A Day Trading Market

All markets offer opportunities for profit. So it's always down to how much money you need to get going. Don't seek to quickly conquer all markets. That will split your attention, and collecting money will take longer. Pick one area so you can concentrate your learning.

(1) Currencies Exchange

All markets offer opportunities for profit. So it's always down to how much money you need to get going. Don't seek to quickly conquer all markets. That will split your attention, and collecting money will take longer. Pick one area so you can concentrate your learning.

(2) Equity Markets

Day stocks need at least $20,000, which makes this a more capital-intensive alternative

(3) Future Markets

Trading such futures markets may require just $1,000 to start. A broad variety of futures is also available for exchange. These are also based on commodities or indexes such as fluctuations in crude oil , gold or S&P 500.

Equipment And Software For Day Trading Beginners

Computer or Laptop

It's preferable to have two monitors but not necessary. The machine will have ample memory and a fast enough processor that there is no lag or crash while running your trading software.

Internet Connection

Day trading with a sporadic Internet connection is not recommended. You should at least use a cable or internet connection of the type ADSL. Speeds vary across these types of services so look for a mid-range internet bundle at least.

The internet provider's slowest speed can do the job, but if you have several web pages and applications running, then you can find that the trading platform is not updating as quickly as it should. See if there's a more secure service, if your internet goes down a lot.

Trading Platform

Install and try the different trading sites. Because you're a novice, you 're not going to have a well-developed style of trading yet, so just try a few that your broker offers and see which one you like best.

Day Trading Strategies

Note before we delve into the most commonly used day trading strategies — they're highly speculative. When you buy, you bet the stock's going to go up. At the other end of the deal there is a seller betting the stock price is going to fall. No-one really knows whether a stock's value would go up or down. As you may have guessed in this buy / sell scenario, only one person will be right and there are many people who lose out when they engage in day-trading strategies. That said, here are some of the most commonly used ones recorded to be used by day traders.

Trend Following

That may be the simplest of all trading strategies. In essence, the aim is to purchase an asset when its price trend is increasing, and to sell when its trend is going down, anticipating price fluctuations to continue.

Range Trading

Using this approach, traders work within a specified range by looking at a stock's price and volume charts to recognize typical daytime peaks and lows. The trader simply buys low with this knowledge, and sells high.

Contrarian Investing

Want to go against public opinion? Then it may be for you to spend contrary. Ultimately, contrary to the prevalent mentality at the time, you buy and sell stock. This approach is based on the idea that crowd behavior will lead to assets being over-estimated or mispriced, and that going against public sentiment can lead to better prices.

Scalping

This strategy is based on profiting from the slight changes in rates, usually after a transaction is carried out and is profitable. The mentality here is to make the lowest possible profits.

News Trading

The most common of trading methods can be news trading. Instead of looking at the price of a stock as it rises and falls all day long, a trader will look at the news in hopes of finding something which will impact the price of a stock. It can be a business statement about sales or new items, a general economic news story about interest rates or unemployment or even plain speculation about the old industry.

Price Action

Price action is a trading strategy that focuses based on recent and past market fluctuations of a stock, from which the trader then makes a decision to sell or purchase. This approach relies heavily on sophisticated analytical instruments to distinguish market trends.

Chart Patterns

Chart trends refer to the graphical representation of the price configurations. A investor uses these charts to evaluate the market and make clear decisions about buying or selling.

Technical Analysis

Use technical analysis to understand market patterns, a trader may use the knowledge to determine when to buy and sell. The idea of this approach is that markets are rising in patterns, and over time those patterns are repeating themselves. A technical analysis approach aims to forecast potential market changes by using current knowledge about demand patterns during the trading day.

Trading Psychology

You have to master your emotions if you trad as a career. When you dip in and out of various hot stocks, you've got to make fast decisions. The thrill of those decisions can even lead to a trading addiction among some traders. Follow these well-known day trading rules to prevent that and make smart decisions:

Controlling Fear

Even the supposedly best inventories can begin to plummet. Fear then sets in and its holdings are liquidated by many investors. They now wave goodbye to future gains while preventing losses. Recognizing that fear is a natural reaction will enable you to keep focused and respond rationally.

Don't Be Greedy

When you're in a winning situation it's not easy to know when to get out of your place before you get whipsawed or blown out. It's a challenge to counter your own greed but one you have to conquer.

Types Of Orders For Day Trading

You execute an order when you wish to buy or sell a stock. It is easily accomplished online on your brokerage account, but you'll need to pick what kind of order you want to execute before you can go ahead. Below are the various options:

Market Order

This is the most common and fastest type of order, which usually involves you going through a brokerage to buy or sell a security at the best price available in the current market

Limit Order

A limit order is an order to buy or sell a stock, at or better than a given price. A buy limit order can be executed only at or below the limit price, and a sell limit order can be executed only at or above the limit price. If the price is not reached then it is possible that your trade will not be carried out.

Stop Order

A stop order, also known as a stop-loss order, is an order to buy or sell a stock until the stock price exceeds a specified amount, called the stop amount. After hitting the stop price a stop order is a market order.

Day Trading For Living

Technological developments have meant that anyone with a working internet connection can start day trading for a living. But while it may be possible, how easy is it and how are you going to do it on earth? This page looks at the benefits of day trading for a living, when and where people trade, and some invaluable tips to give you.

Advances in technology have meant that anyone with a working internet connection can begin day-trading for a living. But while it might be feasible, how simple is it, and how are you going to do it on earth? This page looks at the benefits of day trading for a living, when and where people trade, and some invaluable tips for you.

Is Day Trading For A Living Possible

The first thing to remember is yes, it is a perfectly viable profession to make a living on day trading, but it is not inherently simpler or less work than a normal day job. Alternatively, the advantages are that you are your own boss, and can schedule your working hours any way you want. Trading on a laptop also means you can do it whenever, whenever. 

Beware – there are those out there hoping to make a profit on day trading, but these people usually want to sell you something. Do not believe the hype, or that "easy money" exists.

But, there are ways to make things simpler-for example, if you live in (or transfer to) a low-cost , low-tax country, you don't need to do as much. Cutting back on living costs will also make a huge difference, because in fact, "making a profit" on something means revenue meets expenses.

Risk, Reward, Temperament and Time

(1) How would I feel if I lost money for multiple days in a row? How would I handle this occurrence?

(2) Am I able to accept that despite hard work, diligent research, and focused attention, I may still lose money?

(3) Am I willing to engage with volatile markets day by day while maintaining a rational, long-term perceptive?

(4) For the purposes of paying bills, debt, and supporting my living, do i require predictable income stream that is paid to me in intervals?

(5) Does the possibility of great gain with great risk energize me?

This risk is real. There is unlimited potential for loss. It is not possible to win everyday in the market and no guarantee for a predictable income.

Next, Ask Yourself The Following Questions

(1) Do I like working independently or do I require working with a team, in an office, or require the services of support staff?

(2) Do I work well within and unstructured, unregulated, or non traditional environment?

(3) Do I need traditional amenities that are already organized and available for me to choose from such as health insurance options, vacation days, and formal feedback?

Summary of Day Trading Features

* Short Holding Time / No Overnight Holding 

The term ''holding'' refers to the stock you are trading. In the case of day trading, you will only hold the stock in its "position" (in trading, the position refers to agreement by the holder to either buy or sell that specific amount of stock) for the duration of time that market is open (9am to 3:30pm). This amount to just under a 6.30 hours of holding time.

As we have covered, holding the position for this specific time frame protects your stock from any overnight fluctuations (risk) in the market a time when you can not trade anyway). Once you close out your last trade for the day, you are essentially done done until you trade again the next morning.

* Expensive Startup Costs 

Day trading requires some up-front components that will quickly add up in cost. Trading accounts require a minimum of $25,000 for a trader to make any trade, this amount must be viable in order to keep your trading access open.

You will also need trading capital to actually make the trades an amount that can vary greatly for beginners, but its recommended you being with at least $500 to $2500. The above quoted refers to only the essential cost to initiate an account and being trading. Finally, there is education and training. It is advised that you take a day trading course from a reputable trainer, or, once you become comfortably proficient, you will want to invest in classes to hone your skills.

* More Expensive Brokerage And Fees

This should make sense since you'll be doing more trades, and you'll be trading everyday. Paying fees for each trade may take a large chunk from your earnings these range from 20-30% depending on the level of service that is provided. It will be to your advantage to comparison shop, or to find firms that may offer special discounts if you opened your trade account with them.

* Earnings Are Compounded More Quickly

Here is some good news, day trading offers a faster return on your earnings, which in turn, generate further earnings. If you are making successful trade, you will see daily feedback in your account, and this can be feel immensely gratifying.

* Personality And Temperament 

Are you able to sit focus on great variety of real time, streaming data for hours at a time? Are you willing to forgo a traditional work life with corporate benefits and support? We have already covered the basic personal qualities of self discipline and independence required for a successful trader.

Frequently Asked Question About Day Trading

What is a pattern day trader?
A pattern day trader is someone who essentially makes their full-time business to trading day. It is an official designation for traders who use the same account to execute four or more day trades during five business days. Template day traders get more controls and supervision automatically.

What's the difference between active trading and day trading?

Active trading is a general term that refers to the buying and selling of securities based on short-term market fluctuations for fast benefit. A day trader is a kind of active trader who regularly trades, conducting hundreds of trades in a single day. While a day trader works during the trading day, the general active trading does not have a precise time measure.

How does swing trading differ to day trading?

While day traders do dozens of trades in a single day, swing traders can take a few days or weeks while trying to identify stock price swings over a period of days. It is less fast-paced than the frenzied process of trading day.

What is margin trading?

Margin trading is a mechanism where by stocks are buying using borrowed funds (so-called margins). The traders can increase their leverage by making more funds available. In most cases, a brokerage provides those borrowed funds.

What is margin call?

A margin call is the mechanism in which an investor performed margin trade falls below the amount needed by the broker. The broker would then ask the investor to deposit additional money into the account or sell securities to get it down to a minimum value. It's essentially the dealer who is calling for their debt list.

What is margin requirement in day trading?

The margin requirement is the minimum amount payable by an investor with their own funds before they can borrow funds to buy more. This can be 50 to 60 per cent of the purchase price, depending on the market.

Can you trade penny stocks?

Hey, investors are able to trade penny stocks on a regular basis but that is very risky. Penny stocks are very volatile and could yield quick profits but very fast losses as well.

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Hope this post enhance knowledge of stock market beginners.

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