Day Trading

This article is a brief introduction to Day Trading.

A basic definition of Day Trading is the buying and selling of financial instruments within a single day. This means that any positions that are opened in a market are closed by the end of the trading day.

The profit or loss (but hopefully profit!) for the day is then calculated from the balance of trades.

Many people would have become familiar with the term Day Trading from the era of the dot com boom - mainly because this was the time when technology became available to give the general public easy and cheaper access to the financial markets.

However, the truth is that day traders have been around for as long as there have been financial markets.

The nature of Day Trading dictates that transactions generally occur during a brief timespan. Positions are taken to try and profit from quick moves in the market. Often, these positions will be closed when they have made a quick profit or the price has moved far enough in the wrong direction to convince the day trader that he had made the wrong decision.

People who participate in Day Trading do so with a speculative nature - it would be hard to convince anyone that holding a position for a period of a few minutes to a couple of hours is investing! Because of this, Day Traders are sometimes labeled as greedy bunch of people who are out only to make a quick profit.

However, Day Traders actually perform a fairly important role in the financial markets. This role is to provide liquidity (which means that the rest of us can get in and out of positions more quickly and easily) and to keep the markets running efficiently through the nature of arbitrage.

To become a successful Day Trader requires a certain set of characteristics, including:

• A well thought out trading plan.
• A very good understanding of the markets they are trading.
• A knowledge of the right tools for the job.
• A good understanding or risk and money management.

Entering into any market wishing to Day Trade often ends in disappointment for many people - just take a look around any trading forum for proof of this.

If you want to read some good books about people who became successful day traders, then I would recommend the following:

• Reminiscences of a Stock Operator - in fact, if you have an interest in any sort of trading, you should read this book!
• Pit Bull - Lessons from Wall Street’s Champion Trader

And if you are going to start Day Trading, make sure you do a ton of research into the markets and instruments you are going to trade.

Related Articles:
Moving Average
Boston Snow Indicator
Pivot Points
Special Offer at Share Trading Education
Swing Trading