What is Day Trading in Stocks?

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Day trading is a popular stock trading strategy in which traders open and close trades on the same day, intending to profit from small price movements. The key rule for this strategy is that day trading is classified as a short-term strategy, and traders do not hold their positions overnight. 

By doing so, day traders, also known as active traders, are not exposed to overnight risks and can maintain a more efficient risk management plan. But while day trading may seem like an easy way to make money, it is far from being that simple. 

So, with that in mind, let’s explore how day trading works and whether it is the right strategy for you to enter the trading world.

How Does Day Trading Work?

Generally, stock day traders pick a stock (or more than one stock) and trade the same security within the same day to profit from price movements that happened within that day. When the market closes for the day, a day trader will have closed all positions and realized their profits or losses on all the day trades made on the same day. 

The goal is to play on the short-term volatility and take advantage of small price movements of stock on any given day. Like scalping trading, successful day traders close all positions at the end of the day; however, day traders (unlike scalp traders) can take one position and hold it for several hours or even close it at the last minute of the trading session. Still, this is the most significant rule of day trading. Unlike position and swing traders, pattern day traders always close their positions at the end of the trading day. 

And before you even ask, yes, it is risky. Day trading is suited for stock traders with enough time to analyze, execute and monitor their trade throughout the day. Typically, it is a full-time profession, although, in recent years, many people have started day trading from home, partly due to many remote-funded trading accounts offered by many companies.

How to Day Trade – Stocks Day Trading Strategies and Tips

Day trading is not a hobby or part-time occupation. In fact, most day traders will end up losing money if they do not have a trading plan and a trading strategy to effectively day trade stocks. So how do you even start day trading?

To start with, you firstly need to know the basics of the stock market. You can do that by taking an online course, reading stock trading books, or simply opening a demo account to get familiar with the trading market without risking real money. Then, you need to find the right online trading platform for you, the one trading asset you want to focus on, and perhaps even join a trading room at the beginning of your trading journey.

In stock day trading – it all comes down to creating the perfect setup, expanding your trading knowledge, and getting the best trading tools and features available on many online trading platforms. Further, note that to get involved with day trading activities, you need to open a margin account. For those unaware, margin trading is a type of brokerage account that gives you the option to trade with borrowed money. 

Apart from that, you must also know how to analyze the markets. After all, day traders trade stocks with the goal of trying to predict future price movements of stock prices. This is the second step you need to take after learning the stock market basics and creating a trading working space. As such, you need to understand what chart patterns are to become a pattern day trader and learn how to use different types of chart patterns to predict stock intraday price movements. Also, you better know how to read stock trading charts and use technical analysis indicators.

At some point, you also need to learn different stock day trading strategies and find the one trading system that works best for you. For example, you must determine whether you are a trend or a reversal trader (or maybe both). You also need to find out the best trading hours during the day to make profits.

For that matter, some day traders prefer to trade when there is high volatility and trading volume which usually occurs during the opening and closing hours and economic reports announcement. On the other hand, others prefer to trade when there is low trading volume, and the stock price is less volatile.

With that in mind, here are some pros and cons of day trading to help you determine if this is the right strategy for you. 

Scalp Trading Strategy – Pros and Cons

You might be a stock day trader if

  • You like to enter and exit a trade within one day.
  • You don’t like worrying about what is happening with your trades.
  • You have time to analyze the markets at the beginning of the day and can monitor them throughout the day.
  • You like to know where you’re at with your trades at the end of each day.

You might not be a stock day trader if

  • You don’t have enough time to analyze the markets and monitor them throughout the day.
  • You like longer or shorter-term trading (swing and position trading strategies).
  • You have a day job.

The Bottom Line

So, as you can see, there are many factors that you need to consider to start day trading and become a successful day trader. Day trading stocks is a great way to generate income, but it is a skill you need to acquire. You will likely lose money if you don’t have the skills and knowledge to day trade stocks.

This is how it works. It’s a competitive environment, and you are trading against other top-notch traders. Therefore, you must be aware of the risks involved in day trading and do whatever you can to increase the chances of success. 

Well, in the words of my trading mentor – in day trading, you need to swim like a fish and think like a shark.

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