Day Stock Trading

Many people use stock market investing as an important part of their investment portfolio, buying and selling shares through a broker. Day stock trading is a very different way of approaching the stock market, and is quite distinct from investing. It is for people who like to enjoy a more stimulating way of profiting from the movement of shares on the market.

How To Master Successful Day Stock Trading

Stock day trading involves buying and selling – or selling and then buying back – a stock within the period of a single day, to take advantage of price movements of more volatile or liquid stocks. The more common type of trade is a long trade, in which you buy a stock in the expectation that it will rise, and then sell it to make an immediate profit. However it is also possible, though less common, to trade short – that is, to sell a stock that looks likely to fall, then buy it back at a lower price. This means you pay the lower price for the transaction, and the difference is your profit. Most day traders sell their positions at the close of trading for the day, to avoid price gaps – that is, the difference between the previous day’s closing price and the morning opening price.

If you decide to start day market stock trading, you should first look at finding a day trading brokerage. These brokerages are different from those used for traditional investment, as they specialize in services that are suitable for day trading. When selecting a brokerage, you should look carefully at the services they offer, such as the available markets, the stock trading software they use, their fees and commissions, and the market data feeds they provide. Some brokerages offer commission free stock trading, and this is worth considering for beginners.

Stock trading is carried out through stock exchanges. The main exchanges are the NYSE (New York Stock Exchange) and the LSE (London Stock Exchange), but there are many more, such as the DAX (Germany), Nikkei (Japan) and Hang Seng (Hong Kong). A good brokerage will allow you to choose the exchange on which you trade, or even better will enable automatic routing, that is, allow your order to be routed automatically to the exchange offering the best available price at the time.

Elements Of Day Stock Trading

One element you will need to become familiar with is the different styles or types of day stock trading. The shortest type of stock trade is scalping, in which positions can be held for literally seconds. This requires a cool head, in order to profit from immediate stock movements. With swing trading a position can be held for some hours, and in position trading it can be held for much longer, though a day trader will still seek to close at the end of the day. You should look for a stock trading system that is sufficiently flexible to allow positions to stay open from a few seconds to several hours, according to how profitable the trade appears. Some day traders like to mix several styles, whereas others prefer to choose one style and stay with it.

Another factor you need to consider is which stocks to trade. Not all stocks are equally suitable for day stock trading. You should be looking for stocks with high liquidity and high volatility. High liquidity means you can enter and exit the stock at a good price, with low slippage, that is, very little difference between the expected and actual price of the trade. The volatility level measures the difference between the highest and lowest prices on the day.

You therefore need to find ways of identifying which are the best stocks to trade, and what is the right time to enter a trade. In the first place, it is crucial that you have access to real time activity on the markets, and monitor the activity continuously. A brief fluctuation in price can make your trade, or can break it if your order is delayed by even a few seconds. That means you need to stay by your computer, or your broker needs to do so on your behalf.

In addition, there are tools you can use to analyze the stocks in a more scientific way, the main ones being fundamental analysis and technical analysis. Fundamental analysis consists of looking at the data relating to the company, such as its dividends and sales, and the way it is managed, to predict how it is likely to perform. Technical analysis is more often used by day traders, and involves the use of different types of chart and of quantitative metrics, to identify trends in the market. Both types of analysis have their strong advocates, and many traders like to use both. If you are with a brokerage, they are likely to provide you with tools to assist you.

One of the most essential principles in all types of stock market trading, but particularly in day stock trading, is the use of the stop-loss order. This means setting the trade to exit automatically if the losses reach a specified level, in case the market moves against your trade. In addition, you should set a maximum daily loss level, that is the most you can afford to lose. If losses reach this level, you should cease trading for the day, rather than trying to make up the losses, as this can cause you to panic and take unnecessary risks.

There are a number of different stock trading strategies which the day trader can use, of which scalping is one. Most of them are quite high risk, so you should wait until you have some experience before trying to use them. One popular strategy is fading, which means selling stocks short after rapid upward moves, on the assumption that they have been overbought, and that those who bought them earlier will start taking their profits. Another is known as daily pivots, which is taking advantage of the daily volatility of a stock by trying to buy at the lowest point of the day and sell at the highest.

One type of transaction that is popular with day traders is penny stock day trading. Penny stocks, or micro-cap stocks, are shares in smaller companies which are traded publicly at under $1 (or some define them as under $3 or under $5). They are not usually traded on the major stock exchanges, but on smaller exchanges, and tend to be very volatile, so are suitable for day trading. They tend to be more risky as less information about the companies is available, but there is big potential for profits. The secret of successful penny stock day trading is to aim to take smaller gains more frequently, rather than looking for gains of several hundred percent.

When considering day stock trading, you must be very clear that it is not a get rich quick idea, even though it is often portrayed as such, by people trying to sell books and courses on the subject. It is a very specific set of skills, which take time to master, as well as being a psychologically and mentally challenging activity. As well as taking time to master the required skills, you need to be sure that you are capable of sufficient concentration, and of being disciplined enough to set determined selling and exit points, and stick to them. If you can do this, you stand a good chance of making profits with day stock trading in the long term.