What is Day Trading?

By: James Ethridge
Day trading is defined as the buying and selling of a security within a single trading day. It is daily, online stock trading with very short investment timeframes.

Those who do this day in and day out are traders, not investors.

Because of the high profits (and losses) that day trading stocks makes possible, Day trading is often regarded as more like gambling than investing. In truth day trading is about risk taking not gambling.

Day traders work from their homes or offices. With their eyes glued to computer screens, a day trader may execute over a hundred trades a day.

But they typically do not hold stocks overnight. In fact, they may hold stocks for only a few seconds to limit risk.

A day trader will usually sell their positions before the stock market closes for the trading day to avoid the risk of price gaps between the previous close and the next open. Some day traders consider this to be a golden rule to be obeyed at all times.

Other traders believe they should let the profits run, so it is acceptable to them to stay with a position even after the stock market closes for the day.

For example,at 10:00 AM a day trader might buy 1000 shares of stock just as the price begins to rise, then sell it at 10:04 AM when it is up by 1/2 ($0.50).

The day trader makes $500, minus commission of about $29.95 or less per trade, that is a quick $440.00 or so, excluding taxes.

Many day traders focus primarily on the NASDAQ. It is typically more volatile than the NYSE or AMEX, so it offers more opportunities to play the intraday price waves and troughs.

Volatility however also carries high risk,in the time it takes to grab a cup of coffee, a stock may move 1/2 point or more.

To some, day trading is just a numbers game. They do little research and just watch for moving stocks with good spreads. Others are more scientific about it, relying on news and technical analysis to catch intraday price changes.

Depending on your trading style and strategies, the number of trades made in a day may vary from one, to dozens or more. Some day traders manage to earn millions per year solely by day trading stocks.

Day trading has become increasingly popular among casual traders due to advances in technology, changes in legislation, and the popularity of the internet.

In the past, the tools for day trading stocks were available only to professionals. But thanks to the power of the Internet, everything you need to get started is now conveniently available online.

When you are ready to start day trading, you will need to choose a trading system such as the one I recommend on my website (see Authors Bio).

This course consists of two volumes and two exercise books, which will teach you everything you need to know, even if you have never traded stocks before in your life.

The new second edition has been completely revised for 2008, and includes even more detailed examples, refined trading strategies and online access to a set of in-depth training videos.

Day trading is not a get-rich-quick scheme, it is a mentally and psychologically challenging activity and is by no means meant for everyone.

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