The stock market is a volatile place where the index points can go up and down according to what is happening around the world. One of the subjects related to stock market is day trading.
What is Day Trading?
Day trading involves the buying and selling of stocks on the same trading day(Unlike swing trading where a trader might hold it for 1-2 weeks). The trading positions are closed before the market closes for the day but this may not be the case all the times. It is very different from the afterhours trading where the trading activities continue after the regular hours of the stock exchange market.
How it Works?
People who buy and sell stocks in day trading are called day traders. It seems as if day trading is very hectic but this is not supposed to be necessary. It depends on the traders whether they make several trades or only one in the entire day.
Some day traders buy a stock on one day and then sell it on the next day. This practice is usually adopted when selling it on the same day seems unprofitable. This practice is even allowed because there is no legal restriction that you must complete your trading activities within the same day. However, traders who adopt this practice may have to pay a differential on the brokerage at the most.
Day Trading Practices
The standard practice of day trading involves traders closing their activities by the end of the same stock trading day. Some traders also focus on short term trading. In short term trading, traders close their trading within a few minutes and some even in seconds. However, such traders buy and sell several times throughout the day and their trades usually are of high volumes. They are also preferred by brokers who reward them with big commissions and discounts.
On the other hand, some traders don't get attracted by low brokerages. They are more focused on the momentum of the stock movement. They prefer being patient and making a strong move when they have the opportunity anytime during the stock trading day. However, this means they are only able to make a few trades during the day.
Some traders are of the opinion that they should buy and sell within the same stock trading day. This helps them avoid the risk of facing a gap between the closing price of the stock that day and its opening price the next day.
One thing to keep in mind is that trading also depends on your style and strategy for making trades.
Day Trading Profits and Risks
Day trading is not always a profitable activity. Some traders may make profit in minutes and other may lose money in even less time. For this reason, many people compare day trading with gambling but there are many differences.
Unlike gambling, you can't do day trading without proper understanding of the process. Furthermore, you have to keep up with the market trades in order to make smart decisions to earn profit. It is not at all about a blind man's bluff.
We will try our best to keep this blog full of knowledge nugets supported by our research from swingalpha.com