Have you heard that a lot of people are getting into a type of investing called day trading? Maybe you have some savings and you are thinking about trying it yourself?
At first, people get really excited about day trading because it looks easy and it seems to them that they can make a fortune of it. Is it true? Well, it depends on your approach and your strategy. Inexperienced day traders are often careless and that can lead to losing money very quickly.
If you are interested in how it works and need help minimizing the risks, you are in the right place. Let’s take a closer look at day trading!
What Is Day Trading?
It is the act of buying and selling stocks within a very short period of time and the goal is to make a bunch of small profits that should add up over time and become big gains. When we say “a short period of time” we are talking about hours or even minutes. You can buy a stock at 8:00 a.m. and sell it at 9:00 a.m. the same day, easily. Then you can do it all over again, just with another stock.
Online stockbrokers and investing apps are rising and they make it very easy for everyone with a smartphone to give day trading a go. But you must know that just because it’s easy doesn’t mean it’s the best idea. Some studies have shown that more than 90% of traders lose money if they don’t have a good strategy. According to experts from NetPicks.com, a good trader needs to specialize in trading systems and education. There are a variety of books, training options, and different tools that can help you master day trading and ensure your money will be safe. A very small number of people actually have a strategy and know what they are doing, so make sure you are one of them. Who knows? Maybe you will get so devoted to the practice that it will become your full-time job!
How Does It Work?
Day traders are usually trying their best to stay up to date on news and trends, looking for hints about the company’s stock movements for that day. This is the reason they need to watch television and news and do their research online every day.
Traders usually buy and sell stocks:
- Based on current events (they look at any major announcements, product launches, or profit statements)
- Based on algorithms (they analyze charts to choose the best time to buy and sell)
There are two ways day traders make money:
- If they see or think that the stock is going higher that day, they will buy it and sell when the value goes up. If it happens they were wrong and the stock’s value drops, they will lose money when they sell it.
- If a day trader thinks the stock value will drop that day he will try to “short sell” it, which basically means he will be betting against the stock and make a profit when a stock goes down.
It’s very common amongst day traders to borrow money to make their trades, but this is quite risky. They call it “buying on margin”, and it means they are buying more stock than they can afford. Be very careful with this, because you don’t want to end up in debts.
Why Should You Try It?
Experienced day traders describe it as exciting, heart-pounding, and a high adrenaline buzz. Not to mention you can exit a trade after 15 minutes only to see you made a pile of money in minutes. Carefully following market moves and placing orders every day can be thrilling and interesting.
Another great thing is that you are your own boss, so only you are responsible for your trades and performance. If you are tired of a full-time job, deadlines, and co-workers, maybe you should consider day trading. Just make sure you have a good strategy and self-discipline, and you can enjoy executing trades from your computer while drinking a glass of wine. No more office and picky bosses for you!
The major advantage of day trading, compared to traditional trading, is that there are no risks when holding a stock overnight since you will close the trade before the day ends. This way your income won’t get compromised due to political and economic news, unexpected market moves, or rumors.
Day trading isn’t for everyone. It can sometimes be risky, but it’s very exciting, and not only can it bring you quick money, but it can also completely change your lifestyle. If you wish to give it a go, make sure you are well educated, smart, and perceptive. Dive into day trading waters with the least risk possible!