Day Trading Is Hot Commodity

By: Frank Vanderlugt
Day Trading was, no pun intended, the "hot commodity" of the early-2000 era, with television and Internet hucksters proclaiming it as the "quickest way to get rich". Buy low, sell high, and in one day you could make thousands of dollars!

Yes, you could. But by the same token you could lose thousands of dollars. And guess which is easier, making money or losing it? Unfortunately, many people found out the hard way that day trading wasn’t as easy as it appeared to be, and had to give up day trading and go back to their day jobs.

Day trading involves rapidly buying and selling stocks during the same day, trying to make a few cents per share as the stock moves in price. Day trading is very risky—so risky that the National Association of Securities Dealers (NASD) and the New York Stock Exchange (NYSE) require people deemed to be day traders to have at least $25,000 in their accounts. It is not for the faint of heart.

Day traders commonly buy, hold, and sell stocks, currencies, stock options, and futures contracts. In the days of paper tickers and reports, this was almost exclusively done by large brokerage houses. They alone had the talent, knowledge and net worth to make day trading work.

Today everything is computerized.

You and I have instant access to stock prices and even analysis with our home computers. However, knowledge (and a quick click of the mouse) is still what separates those who will make it from those who don’t. You have to do your homework.

Because of that, many day traders specialize in a particular segment of the market, or even in a narrow range of companies within a market. Even within, say, the transportation industry, a day trader may focus her or her attention on automakers or railroad stocks.

Futures traders are trading based not on what a stock price currently is, but what the market thinks it will be. To day trade in futures you not only need to have good knowledge, but you need your ear to the ground because even rumors on the Street (as Wall Street is often referred to) can cause spikes, up or down, in a stock’s price.

Day traders often borrow money with which to trade. This is called trading on margin, and is another reason most day traders close out their positions, or sell their stocks, each day. Interest rates on the money they’ve borrowed tend to change overnight.

A successful (read: profitable) day trader will also keep meticulous records. To make a profit on a change of a few cents in value during a day, day traders generally buy large blocks of shares. Having a record of what worked and what didn’t will help you avoid making the same mistake numerous times, costing you money.

A successful day trader does not get emotionally involved with his or her stocks. This is a business venture, with a business plan. You have to go into this type of stock trading with a plan, and be willing to execute it with cold-hearted precision.

That’s not to say your plan can’t change. You will learn as you gain experience, and will very likely alter your original outline. But you will never buy a stock because it "feels good". That’s a recipe for disaster.

Day trading can be a gut-wrenching roller coaster of emotion or it can be a well-thought-out plan for achieving financial success. If you study the market and educate yourself, have enough financial resources to enter the market and maintain great records, you can reap amazing benefits.

If not, it’s probably best if you stick to the buy-and-hold strategy of stock ownership.

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