Day traders sell and buy stocks rapidly through the day hoping that their stocks’ value will climb or fall for the minutes or seconds they have ownership of the stocks with an effort to rake in quick profit. Usually, day trading is done only within the day and all positions are closed before the close of the market for that trading day. Most day traders are investment firm or bank employees who specialize as fund and equity investment managers. However, it has now become popular with home traders with the advent of margin trading and electronic trading.
Characteristics of day traders;
· Most traders exit positions before the close of markets to avoid falling into risks they can’t manage while others let their profits run so it is also acceptable stay with a position after the close of the market.
· Some traders practice scalping whereby a trader holds a position for a few minutes or seconds.
· Day may focus on technical patterns, price momentums or on a few strategies they feel comfortable with.
· Day traders practice margin trading whereby they borrow money for the purpose of trading.
When you have the right trading system, you can make loads of money by trading. The trading systems do not necessarily fit all types of people so you ought to choose one that you will be comfortable with personally. Before you can find the system fits into your situation and uses your strengths best, you must first define your financial objectives.
The following is a list of factors that you must consider as you try to find the best for system that suits your situation best for investing;
· Whether you will trade part time or full time.
· The amount of capital that you will be trade. You should only trade with an amount of money that you will be comfortable losing. It will aid you avoid taking unnecessary risks you cannot afford loosing.
· You risk tolerance i.e. how tolerant you are to taking risks and the amount of risk you are comfortable with. In trading, you take risks in the form of drawdown which is the amount of money one loses while trading. You should identify how much drawdown you are comfortable with whether 20%, 30% etc.
· The annual rate of return that you want.
· The means by which you want to make money while trading on the stock market.
· Whether you want a steady flow of cash by taking profits consistently from the stock market or you are looking to grow capital overtime in the stock market.
Day trading is a very risky affair and could result in massive financial losses in a very short time. To prevent running into such losses you should ensure that you have competent money management, that you trade a reasonably winnable game and that you trade with discipline by following your set trading strategies, rules and tactics.