What is Day Trading and What Does it Means

day trading

Day Trading

Day Trading means taking a position in the markets with a view of squaring that position before the end of the day.

A day trader trades several times a day looking for fractions of a point to the few points per trade, but who close out all the positions by day’s end.

The goal of a day trader is to capitalize on price movement within one-day trading.

Unlike investors, a day trader may hold positions for a few minutes or seconds, and never overnight.

What does Day Trading Mean

Day trading is a widely misunderstood and misused the term. Day trading means not holding on to your stock positions beyond the current trading day. In other words, not holding any trading position overnight. This is the safest way to do day trading because you are not exposed to the potential losses that can occur when the market is closed due to the news that can affect the prices of your stocks.

Unfortunately, many of the people who claim to be Day Trading, hold stocks overnight because of fear or greed, thus placing themselves up for the catastrophic elimination of their capital. When a day trading currencies, the term “day trading” changes slightly. Since currencies can be traded 24 hours a day, there is no such thing as “overnight” trading. Therefore, you can have open positions for longer than the day with actual stop losses that can be activated at any time.

Day Trading can be Subdivided into a Number of Styles

1. Scalpers

This style of day trading involves the rapid and repeated buying and selling of a large volume of stocks within minutes or seconds. The objective is to earn the small per share profit on each transaction while minimizing the risk.

2. Momentum Traders

This style of day trading involves in identifying and trading stocks that are in the moving pattern during a day, in an attempt to buy such stocks at bottoms and sell at tops.

Advantages of Day Trading

1. Zero Overnight Risk

As positions are closed before the end of the trading day, news and events that affect the next day trading opening prices do not affect your portfolio.

2. Increased Leverage

Day Traders have the greater leverage on their trading capital because of low margin requirements as their trades that are closed in the same market day. This will increase leverage can increase your profits if used wisely.

3. Profit In Any Market Direction

Day trading often will utilize short-selling to take advantage of declining stock prices. The ability to look in profits even as markets fall throughout the trading day is beneficial during bear market conditions.

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