Day trading is a specific form of trading which involves the purchase and sale of financial instruments
on the same trading day. Formerly the exclusive domain of banks and investment companies, day trading has now
become available to anybody with a computer, some basic trading knowledge, and funds to spare.
All day traders are united by a single goal – to gain maximum profit; however, they use different techniques
when trying to reach it. Here are some of the more popular ones:
Scalping
When this trading technique is used, financial instruments are bought and sold within a very short period of
time, typically ranging from a few seconds to several minutes. Scalping traders attempt to buy an instrument at
its Bid price and sell it at its Ask price. As instruments are held only for a limited time, traders are exposed
to little risk of loss; however, their profit per single instrument is also minimized.
Trend Trading
This style is common not just to stocks whose value is dropping.
Counter-Trend Trading
Individuals who employ this technique act contrary to the current market conditions, expecting these to change
in the opposite direction at some point in the near future. Such traders will buy instruments with price that
has been decreasing and will sell instruments with value that is rising.
Range Trading
Range traders follow instruments with price that does not move in one continuous direction, but rises and falls
intermittently. Traders will buy a stock when it hits a low, and will sell it at a profit once it reaches its
high value.
News Trading
News trading basically means acting in accordance with the news aired about a particular instrument, e.g. buying
stock when the news is good, or selling it when the news is bad. Whether a piece of news is good or bad depends
not so much on its actual contents, but on the movements it causes on trade markets.
Rebate trading
With this style, the major source of revenue and profits is associated with ECN rebates. Rebate traders aim to
generate profit from the rebates by trading high volume, low priced stocks. In this way, they are able to trade
a larger number of shares, contributing to better liquidity with a fixed amount of capital. At the same time,
they limit the risk of not exiting a position in the stock.
Other techniques used for day trading include price action (relying on technical analysis) and artificial
intelligence, with stock trades being generated by high-frequency trading and automatic algorithms. The
increasing reliance on quantitative techniques and algorithms has resulted in a greater competition and
consequently – fewer profits.
Due to the possible quick returns and the nature of financial leverage, day trading may be very profitable or
unprofitable. It can be very risky, especially if the trader does not follow any day trading rules, and
strategies. Another risk is associated with poor executing of trades or incompetent money management.
Available Financial Instruments
Day traders can trade with a number of financial instruments, the most popular being stocks, options,
currencies, and futures contracts. All of these have their own peculiarities, which warrant a thorough research
before one decides to invest.
Free charting webinarMon, Nov 18th, 2013 12:00 PM - 1:00 PM ESTDuring the 60 minute session Paul Coghlan, founder of Coghlan Capital, looks at current charts for currencies, precious metals, US indices, highlighting turns and low risk entry points using the Median line analysis methodology. Median line analysis reduces risk and increases the chartists ability to see trend direction, trend
strength and highlight entry and exit levels. Seats are limited so be sure to reserve your spot today. The webinar will be recorded, by signing up you'll receive an email with the webinar replay afterwards. |