4 Tips To Becoming A Successful Day Trader

By: Abhishek Agarwal

A 'day trader' refers to the risky buying or selling of financial instruments. Financial instruments include cash and other financial derivatives. Financial instruments are only available in the circle of financial market that is often used for trading.

Many business people take notes using a third party that is often backed up by credit parties e.g. banks. The result of this action is that the security is now a transferable interest and is representation of financial value.

Security can be categorized into two main categories: either bearers and registered security or debt and equity security. Usage of these securities is different for both the issuer and the holder. Security characteristics have been greatly expanding with passing time mainly. The reason can be defined in relation with capital raisings.

Usually a Certificate is used for representing security. Included in this certificate is mutual funding, corporate stocks or bonds, stock options, investment instruments, units of limited partnership etc.

Defining stock, using financial term, is the raised capital of corporation that is distributed and issued using shares. Shareholder is not limited to one type of person. It can be anyone including a person in possession of shares, a company or a corporation having a fraction of stock. Aggregation of shares that are issued by a corporation heavily depends on market capitalization.

Each individual should be familiar with the basic techniques of stock market in order to become a successful stock day trader. Given below are important characteristics you must be familiar with to achieve success.

1. You should be familiar with liquidity. Liquidity is the existence of sellers and buyers in large amount over specific stocks that permits a fellow trader to quickly gain a position or willingly exits the stock. Liquidity is based on many important factors such as number of market makers, number of shares, volumes and ownership breadth. Liquidity requires fast execution from a trader within predictable price range. In addition, you should keep an eye out for high-liquidity. High-liquidity gives an additional advantage of reducing the popularity of a bid-ask for a certain stock which results in reduced execution of the cost for a day trader.

2. One of the factors on which liquidity depends is volume. A good trading day is one in which at least 500,000 shares are traded. This high volumes result in buying or selling of stock in large quantities without affecting the stock prices.

3. Volatility is predicted price range of stock of a specified time period. A $2 up and down in stock prices is a good choice while very little change should not be appreciated.

4. The ability to obtain information by understanding current pattern in market flow, also known as market depth, is transparency. Systems such as NYSE or NASDAQ II are used for this purpose. NASDAQ II obtains information from highest prices asked and lowest bid made while NYSE obtains information using highest bids made and lowest asked prices.

In United Kingdom, a stock is used in a different financial meaning that is bond. Bond is widely used in security markets. Despite this, shares are the same if they are used in specified corporation issued stock.

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