Market participants are divided into two categories such as traders and investors. If we take a look, both are technically involved in investing. But there is a big difference between them. Investors always consist of long term investments. They hold positions for a month or sometimes years. On the other hand, we can keep Day Trades. They perform trading during the daytime only, and they hold positions for a short term. They close their trade on the same day.
Some people think becoming a day trader is an easy task, but it is not like that. Day trading consists of a lot of risk factors that can lead you towards losses. But it does not mean day trading is harmful. Only you need to be careful while doing day trading. Day traders need to be confident about their trade and strategies.
Here we put efforts to clear your doughnuts about Day traders and Day Trading. Check the risk factors of day trading from this article. If you are thinking about doing day trading, read various day trading strategies from the article given below.
What is a Day Trader?
In simple words, a Day Trader is a person who opens and closes trade on the same trading day. They perform short term trading in which buying and selling both processes will take place during the same day. For day traders, time matters a lot for them. They need to perform trades at the right time to generate profits. They need to stay attentive for minutes and hours because they have to close the trade on the same day. They generate profits through trending stocks which fluctuate more throughout the day.
They ignore the company’s fundamentals; they focus on technical charts of stock prices which they are doing right now. And must check historical data of certain stocks which they are trading.
For instance, a day trader should generally purchase a position in a bankrupt firm because there is no uptrend available on a particular day.
How to Become a Day Trader?
Here we provide you some tips which will help you in becoming a day trader. Collect tips to generate money through day trading.
Perform a personal audit
If you like to participate in day trading, you have to understand the challenges that come in your path while doing day trading. Different trading strategies and terminology can’t do anything if you do not pay attention to the trade. Day trading is all about keeping a close eye on stock price movements and utilizing price fluctuations for generating profits. If you do not pay attention, it will lead you towards losses. There is no guarantee that you will generate profit all the time. Day trading is not an easy task. Day trading is a challenging performance.
Research the market, strategies, and potential platforms
Before becoming a day trader, you need to study market behaviour such as the forex market, the indices market, the stock market, and any other marketplace. As a day trader, you need to do more research and be alert about the price fluctuation. Day traders need to do market research before making trading strategies. This thing will help day traders to generate remarkable profits.
After completing the research work, you do not need to be overconfident. Only research work can’t do anything. It would be best if you started with small stocks. Before taking a significant risk, you have to spend time learning about how to perform day trade. Must begin with small stocks which you can manage easily. Handling a price fluctuation of big stock consists of high risks. Do not invest your whole money because it is not necessary that you will gain profits all the time. The chances of losing are more significant than the chances of winning. So only invest that amount of your income which you do not require in an emergency. You must keep your necessary funds aside from the investment money.
Understanding the risks & Challenges
Day trading is a challenging task, and there are several challenges that come while day trading. It is necessary to understand that day trading is not a source of quick money marking. It is not necessary that the trading strategy will perform well. It may also fail sometimes. In that case, you will lose funds that you invested in day trading. You need to do smart work along with hard work for performing well in Day trade. You have to face day trading challenges smartly rather than dealing with them recklessly in a hurry.
What is Day Trading?
Day trading is the process of buying and selling stock during trading day. In other words, on a trading day when traders open and close a trade on the same day and do not keep stock for the long term. This process is known as day trading.
Multiple trading markets are available for trading. Traders can select any market with which they are comfortable. Suppose you buy shares of XYZ company and expect the price will increase in upcoming hours. Then wait for the right time and sell your share when its price rises. All these steps will take place on the same day.
Advantages of Day Trading
Day trading consists of lots of benefits such as you need to trade only during the daytime, you may not need to pay night trading fees, etc. In day trading, you can perform trading from anywhere through a laptop, trading software, brokerage platform, and you only require a stable net connection.
Through day trading, traders can generate profit in a single day; they no need to wait for months and years for price increment. They make a profit through small price fluctuations.
Key benefits of Day Trading
- The major advantage of day trading is that it does not block your money for a long period of time. It generates returns before closing the market.
- For traders who want to generate profit quickly, day trading is the best option for those traders. The result of the day trading comes within the same day, either it is profit or loss.
- Day traders can gain advantages from rising and falling stock prices in the market. Day traders perform short selling to generate profits through falling stocks.
- Day traders need to be careful about the market trends, either Bullish or Bearish; you need to trade accordingly. They can make a profit in both conditions in bullish as well as in bearish.
- A number of day trading brokerages are fewer compared to delivery based trading brokerages.
- The stock market can drop 5 to 10% overnight because of global market news, which is released after the market closes. Day trading does not get affected by these news because day traders do not keep their position open overnight.
- Day traders are not required to check fundamental and technical aspects of the stock. They perform trade on the basis of chart analysis.
Disadvantages of Day Trading
- Day trading consists of high risks of capital loss.
- Day traders need to do a lot of research and reading work to generate excellent profits.
- Day traders can perform multiple trades in a single day, but they need to pay charges to their broker for every trade, even if they lose that trade.
- Day trading is a very stressful task.
- Day trading is a risky job that results in considerable losses in a very short period.
Multiple Day Trading strategies
Here we explain some day trading strategies which are commonly used by experienced and professional day traders.
A breakout strategy stands for a sizable fluctuation. A breakout on a stock price that relatively stays for a long time. For instance, suppose a stock remains between 30 USD to 31 USD over three weeks and all of a sudden it starts rising or dropping extremely; that time is the best opportunity to trade. This type of volatility is good for Day trading.
Momentum trading works on the basis of trading news and information. Day traders can take advantage of news events to perform trade with rising and falling stocks. It may require a lot of research and analysis time. Still, it is the best option to get a step in day trading as a beginner.
A Scalping strategy stands for the selling of stock instantly after the trade is ready to make a profit. It is the easiest way to perform well while doing day trading. It is not too difficult to select the right time to trade. You only need to be alert about price fluctuation. Scalping can also generate profit by taking benefits of the “spread” because traders can quickly generate profits through the difference between the buyer’s offer and the seller’s ask price.
Fade is acting alternatively to the current trend appearing in the market. It is too risky a strategy that acts oppositely to the conventional wisdom. This risk, naturally, is the conventional wisdom that is the potential factor of the stock market.
How to find Best Day Trading Stocks?
Losses are the major factors of day trading. Still, traders can generate profits with the help of a deep analysis of the market. While searching and analyzing the best stocks for day trading, keep these methods in mind.
Price-to-earn ratio (P/E) ratio
The price-to-earn ratio of a firm should provide you with information about a company’s growth performance compared to other companies in the same industry. It is calculated through the current trading value of a stock compared to its earnings per share in the previous 12 months. A company that holds a high earning value from its current value is considered stronger than other competitors.
A debt-to-EBITDA ratio helps us to determine whether the company is a good investment or not. The high debt-to-EBITDA ratio shows that the firm’s debt is performing well before taxes, interest, amortization, and depreciation. A low debt-to-EBITDA ratio symbolizes a company shouldn’t gain profit, or it will be a risky investment.
If you are still not clear how to use these strategies, select a few stocks as per your choice based on their fundamentals and follow them over for some time period. Check how they are performing? Any activity can take place in those stocks through which you can make a profit.
Price-to-earn growth (PEG) ratio
The PEG ratio helps you to understand how a company will perform in the upcoming years or two. It should be calculated through the P/E ratio by comparing them to the firm expected growth ratio. The higher the PEG ratio, the bigger the firm’s growth.
How to perform Day Trading in simple steps?
Follow these steps to perform Day trading.
Trading strategy: First, select any one trading strategy. If you do not apply strategy, you will buy and sell stock randomly and generate random profits.
Technical Analysis: Must track stock performance before buying them because it helps you to determine either it is a good investment or bad. You can track stock performance through charts and news events.
Stock Market Pattern: To become a smart day trader, you need to understand the charts pattern because sometimes they repeat. You need to study how to notice and trade them efficiently with the help of a strategy that works well for you.
Day trading is not an easy task. Some people think it is the best way of earning profits quickly, but it is not true. Day trading consists of a lot of risks. It is not necessary that all trade will be successful during the day. Day traders face losses more than they generate profit. In this article, we explain various day trading strategies that help you to generate profit during day trading. Check factors that help you to determine the best day trading stocks. For more details about day trading and how to perform day trade, read the above article carefully.