What Is Day Trading?
Day trading is a rapidly growing trend in stock trading which promises huge profits for little effort -- but it is a very risky business and will not suit everyone. In fact studies have shown that 80 percent of day traders actually lose money over time, so the odds are not good for novice day traders. Most experts agree that traditional trading on the stock market will bring great deal more success and that most people who have made big money to the stock exchange have actually done it through the more traditional trading methods.
However, if you have some capital to risk for the promise of huge returns -- and some successful traders have made six-figure sums in a single day -- you will need a thorough training and the benefit of the advice of expert professional traders.
What does day trading involve?
Day trading involves buying and selling securities of stock within one day with the aim of making a profit from the difference between the buying and selling price. Day trading can benefit the stock market industry because it keeps liquidity in the markets and keeps them running efficiently -- after all the stock exchange exists to buy and sell stock.
Why is it so risky?
Day trading is not necessarily the best way of making a profit in stock and even experienced investors and brokers are still debating the issue. This form of trading is considered risky because it is peddled as a way to make fast, easy money -- traders rapidly buy and sell stocks in a single day and most of the time they actually lose money, so the risk is simply not justified.
Because of the nature of this type of business, it is open to abuse and there are plenty of scams around on the Internet with people cashing in on traders wanting to make a fast buck. If you want to try day trading, make sure you do your homework before you get involved. People get scammed because they are gullible and believe promises of huge profits in record time -- take everything you read with a pinch of salt and get professional advice before you go ahead with anything.
If you are new to day trading, remember that you will be competing with professional licensed traders who have a great deal more experience than you have. It pays to learn as much as you can about trading strategies before you start gambling with your money.
Before you start day trading, you should decide on your goals for trading -- do you want to grow capital to fund your retirement or are you looking for income now? Your strategy will vary depending on these goals. Some trading strategies aim to make small gains with less likelihood of making a loss, while other systems are more risky but aim for an occasional large profit. Most trades result in small losses but sometimes traders can suffer a large loss -- how would you cope if it was you?
Test your trading strategy using computerized trading programs before you commit any real money. Computerized programs simulate trading in real-time and it is a good way to test your skills at trading and will allow you to learn about your system and become an expert before you start trading real money.
Another advantage in taking time to practice trading is that you learn to develop your own trading style. You shouldn't simply trust a trading ’system’ without building a robust knowledge base and gaining the experience to become a successful trader. It is not really a quick way to make a profit because you have to put a lot of time and effort into developing your expertise.
Finally avoid over-trading as this is one of the most common mistakes, even by experienced traders. Over-trading occurs when day traders spend the whole day in front of the trading screen trying to catch every move in the market and trying to make money at every opportunity. You have to learn to be choosy about when to make trades. Look for only those trades with the highest probability of success, rather than aiming to make as many trades as you can.