Day Trading Stocks

Day Trading Stocks

Quite simply, day trading stocks is the act of buying and selling a stock within the same day, with the hope of making a profit by leveraging large amounts of capital (money invested) to take advantage of small price movements in highly liquid and volatile stocks.

The term Liquid stock means a stock that is characterized by a large volume of trading and a large pool of interested buyers and sellers.

Liquidity allows you to enter and exit a stock at a good price with tight spreads, or the difference between the bid and ask price of a stock, and low slippage, or the difference between the expected price of a trade and the actual price a stock trades at.

Volatility is a measure of the expected daily price range—the range in which a day trader operates.

A higher volatility means that a security's value can potentially be spread out over a larger range of values. This means that the price of the security can change dramatically over a short time period in either direction and therefore the potential of greater profit or loss.

A lower volatility means that a security's value does not fluctuate dramatically, but changes in value at a steady pace over a period of time.

Many people get into day trading expecting to make large returns every year with minimal effort. In reality, many day traders lose money. However, by using a well-defined strategy that you are comfortable with, you can improve your chances of beating the odds.

Day trading stocks is a full-time job in itself, and I would urge anyone considering a part-time effort to reconsider.

It is critically important for a Day Trader to be "in the market" full-time. If you do not pay constant attention to the market, I guarantee that you will miss out on crucial information that will inevitably cost you money.

In fact, part-time day trading stocks will likely result in a net loss of capital and leave you further from your goal, than if you didn't trade at all. You are better off using a mid-term trading strategy like breakout stock trading system.

Does this scare you? If it does, then you shouldn't be day trading stocks.

Now having made those statements, day trading stocks in the short-term time frame is the safest time frame of all!

Why you ask? When the Stock Market moves into a state of panic and is unstable, the advantage during these times will always reside on the side of the short-term day traders.

Short term traders have the luxury of turning on the dime. They can bob and weave, switch sides with the speed of light and change stances.

To operate as a business, classification as a Day Trader means that you day trade 4 times in a rolling 5 business day period in a margin account. This regulation that governs pattern day trading requires that you have $25,000 to use the buying power in this account.

A Margin Account allows you to borrow money from your broker in order to purchase additional securities using your current holdings as collateral. A $2,000 balance must be maintained if you wish to borrow funds on margin.


Day Trading Chart


Day traders will use Hourly charts versus a Daily chart.

Lets compare a Daily and a Hourly stock chart of the same stock below.

Daily Chart

Day Trading Daily Chart

Hourly Chart

Day Trading Hourly Chart

Charts by MetaStock

A little bit more action on the Hourly Chart, isn't there.

So the difference being, is that when you use a Day Trading system, the chart patterns will be still be there, but in a much shorter time frame.

You trade in and out, quickly, by the hour, sometimes sooner.

Can you see why this style of stock trading requires total commitment and focus?

Your knowledge of Technical Analysis, Risk and Money Management and Candlesticks Charts is essential.

When things are not going well, and an angry market seems determined to make you feel its wrath it may hurt. But know that long term stock traders always get hurt more. In today's new world of day trading online, short term trading is better.

And also most important when day trading stocks, is to understand stock trading psychology.

________________________________________________________________ ________________________________________________________________

Trade Your Way To Financial Freedom For further in-depth information, the book Financial Freedom Through Electronic Day Trading by Dr. Van K. Tharp, teaches day traders the proven strategies and information they need to survive and succeed in day trading stocks.

This step-by-step short course on electronic day trading takes you through the nuts-and-bolts technical and strategic basics you need, then tackles the all-important psychological aspects of trading­­, transforming you from an awkward, second-guessing novice into a confident, knowledgeable day trading master who knows how to turn market inefficiencies into fast, solid gains.

This book will teach you:

  • Proven market analysis techniques adapted to a day trading perspective
  • Key tactical­­ and mental­­ components for developing your personal trading plan
  • Below-the-radar methods to determine a market maker's position
  • Broad-based strategic guidelines to help every trader, with specific trading tactics that can be tailored to fit any plan
  • Recommendations for integrated hardware and software configurations
  • Applications of NeuroLinguistic Programming (NLP) to the science of trading

The goal of this book is to make you the best day trader possible, in the shortest time possible.

Learn More Here

Next: Day Trading Systems and Strategies


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