From the category archives:

Day Trading

How Does Day Trading Work?

Day trading works the same way as other stock market trading with the difference being that you are working to a compressed time frame of one day. In trading, you will essentially buy stock at one price, wait until it increases in value and then sell to make a profit. Many traders would buy stock like this but would wait for many weeks or months to sell based on market indicators suggesting that the stock may have peaked. The obvious danger in day trading is that things move a lot quicker as the trader is hoping to sell the stock in hours or minutes of buying thus it is critical that the trader has a firm grasp on how does day trading work.

Whilst day trading does promise and offer the opportunity of quick profits, it also carries great risk and large amounts of money can be lost in a very short period of time.

Traders can also also make profits by taking up a position on a stock that they believe will actually fall in price. This is called short trading or taking up a short position. The same can be carried out during day trading activities.

Due to the way that stocks and shares can fluctuate during a single working day, it is possible for a skilled day trader to buy stock at a low price, wait until the price moves up, sell for a profit, wait for another period of time for the stock to drop in value again and then buy the same stock at a lower price and finally resell when it has increased in value again.

Experienced day traders will typically have more than one stock open at any particular time and will trade many during a single day with the hope of an overall profit. Any loses they may make on a particular choice of stock they will aim to cover with profits from one of their other choices. This way the risk is somewhat averaged out.

Because of the speed that trading moves at, it is difficult for a day trader to operate without some form of day trading software. There are various types of software to carry out various functions but none are full proof nor do they offer any guarantee of profit.

Day trading can be carried out in more than one market and depending on what stock market you decide to trade on you will need to start your day accordingly. For example, you could trade in the U.S, the U.K or even the Japanese markets taking you right across the globe and thus opening a large window of time. Traders will always pay attention to world news that could affect the immediate movement of stock values once the market opens and throughout the day.

Day trading is not without other expenses. Traders have to pay commission or fees every time they buy and sell, also taxes for capital gains are higher for stocks held for less than a year.

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Sequential Trading Single Day Cycle

The sequential trading single day cycle method of trading is based on the idea that certain patterns within stock movements appear and can be applied to a model on a single day trading cycle. The idea suggests that if you record enough statistical data on the movement of stocks that an orderly pattern may appear and more importantly – a repeatable pattern should emerge.

One company that looks at this is detail is Amtrade Group (http://www.datafeeds.com.au/whatamt.html), and their site gives a detailed insight into the Sequential Trading Single Day Cycle method and analysis. They use sequential data recorded over the previous five days of trading to allow a more accurate analysis of how the stock would be expected to move over the next trading day.

This data could be crucial to professional day traders to allow them to better predict the movements of stock they are targeting or to help them pick stocks that could be profitable for their days trading.

Sequential data is used in many scientific platforms and is not limited to stock market trading. It allows an observer to use sequential data already recorded to predict the future data of a system or program. In theory, the person armed with the past data should be better able to determine the output of future data than someone without this knowledge. This would of course seem to be a logical notion. It involves a systematic approach to trading and allows the user to form a plan before actually setting up a trade.

As with any stock market system, and particularly with day trading, there is no guarantee to profits and inexperienced individuals could find themselves out of pocket by a vast amount. However, for those already involved with trading stocks then the sequential trading single day cycle model will probably be well worth a look and potentially an extra tool in the arsenal of the professional day trader.

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Minimum Balance Required For Day Trading

For traders interested in getting into day trading, there is always the pressing question of how much it will cost them to get started and what is the minimum balance required for day trading.

For those traders operating in the United States, day trading is regulated by the Financial Industry Regulatory Authority (FINRA). They have a directive that all brokers must follow stating that if you have four or more day trades within 5 trading days, you will be categorized as a pattern daytrader and thus you must to maintain a minimum of $25k in a margin account.

This very fact alone puts day trading out of reach of most individuals and also lets potential wannabe traders know just how serious this business is. The rule is enforced by all stock brokers as otherwise they would be breaking the law. Additionally, the margins that many day traders work with can be very small – say .25% to 5% and thus it is their capital that allows them to make a trade in these low margins worthwhile. Commission charges can quickly eat into any profits that you may hope to make if you are only trading with small sums of money – this applies to any trading or investment model and is known as your return on investment. To illustrate consider the following example:

Lets say trader A has a balance of $100, trader B has a balance of $1000 and trader C has a balance of $10,000. They all pick the same stock valued at $2 per share. Lets also say that the commission charge for buying and selling is $10.

Now consider that the stock moves from $2 per share by an increase of 5% to a value of $2.10 per share and all parties sell their stocks. Here is a break down of where all three traders stand.

Trader A paid $10 to buy and $10 to sell, leaving him with $80 to buy shares. He was able to buy 40 shares at $2 each. When he sold, his 40 shares were worth $84 so although the stock went up by a healthy 5% he still lost $16.

Trader B paid $10 to buy and $10 to sell, leaving him with $980 to buy shares. For this he was able to obtain 490 shares that were later sold at $2.10 each giving him $1029 or a profit of $29.

Trader C paid his $10 to buy and $10 to sell and had a value of $9980 to buy shares for which he received 4990 shares. Selling these brought him a final value of $10,479 or a profit of $479.

As you can see all three traders carried out exactly the same trade but their available capital had a significant affect on their ability to make a profit. Trader A lost 16% of his capital. Trader B made a 2.9% increase but Trader C made a 4.29% profit because the commission became negligible against the actual trade amount.

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