Day trading is buying and selling stock in the same day using large amounts of capital. The goal is to make a lot of profit from only a little movement in the market. This can be accomplished because only a little movement on a large number of shares can equate to a substantial profit. According to the North American Securities Administrators Association, 9 out of 10 day traders lose money and eventually deplete their trading capital. However, a select group of experienced day traders can make an above average income in excess of $100,000 per year or more.
Picking Your Stocks
In order to make a good living at day trading, it is important to understand the qualities of a particular stock that make it a good candidate. These factors are liquidity and volatility. Liquidity allows for the purchase and sale of the stock at a decent price, while volatility dictates the price range of the stock throughout the day. Higher volatility brings with it a chance for greater profits, but also a higher risk of loss.
Methods of Day Trading
There are many different methods of day trading, and results can vary depending on proficiency with a particular style. Scalping consists of buying a stock and then selling it immediately after profits are achieved, while fading involves short selling stocks after a rapid upward climb. Using daily pivots is a method that uses a stock’s daily volatility to realize profits. Finally, momentum involves finding a stock that is experiencing an upward trend and riding it until it reaches its peak.
Using Stop Losses
When day trading, there is a high chance that you can experience major losses from unexpected moves in a particular stock price. To combat this, stop losses are put into place. It is always wise to use two stop losses. The first one should be set at the point where the stock price becomes too low for your risk preference, and the other should be in place in case of any unexpected fluctuation in the stock price.
Success in Day Trading
Because of the amount of investors who have experienced success in day trading, many people choose to attempt this line of work. Unfortunately, the majority of people who try it end up losing money and ending their pursuit. Day trading is a risky line of work, and often the odds of making a profit are better at a casino. The various techniques and methods of day trading outline the best ways to earn a living, but even they are uncertain.