What is Day Trading?
Day Trading is a speculative trading style that involves the opening and closing of a position within the same day.
Quick example: If you open a new position at 10AM and close it by 2PM on the same day, you have completed a day trade.
If you were to close that same position the following morning, it would no longer be considered a day trade.
Day traders, or active traders, typically use technical analysis and a trading strategy to try and make profits in a short period of time and will often use margin to increase buying power.
A successful day trader doesn’t just pick any stock and try to trade it. There has to be some kind of strategy involved with rules and money management parameters.
How Does Day Trading Work?
Day trading works by capitalizing on short-term price movements in a stock through the active buying and selling of shares.
Day traders seek volatility in the market. Without short term price movement (volatility) there is no opportunity. The more a stock moves, the more profit a trader can make or lose in a single trade.
That’s why traders must exercise excellent risk management skills in order to keep losers small while letting winners run.
You can think of day traders as being a manager of risk. We put capital at risk in order to try and make more money but if we mismanage your risk, we will have a hard time consistently making money.
Successful traders will often have predetermined entry and exit points before we even enter the trade.
This helps take emotion out of the trade, which in return keeps the trader from over managing their position (proven to have a negative impact in the long run).