Day trading is a form of stocks and shares trading whereby the trader typically buys and sells stocks several times during a single working day or single trading day. Trading in stocks and share involves identifying stock that you believe will move in a certain direction either up in price or even down in price and buying a position that will allow you to make a profit as the market moves.
In a typical day many stocks and shares that are traded on the stock market will move up and down in price as people and traders buy or sell shares. For example, let’s say a particular design company comes up with a new design for a product and it gets good press coverage. This will tend to boost their share price as people start buying their stocks and demand for available shares in the company increases. A day trader may buy into the stock in the early part of the day and wait a few hours as the stock price increases. Once the trader believes the stock has potentially reached its optimum level he will then sell the share back into the market where they are bought by another trader. The trader’s profit is then the difference in what he bought the shares for against what he sold them for less any fees for the actual trade itself.
Day trading is seen by many as a risky form of investment as it can potentially wipe out your funds in a very short period of time. However, many professional traders will tell you that the only difference in the time taken to perform the exercise. An investment of say $1000 in a long term trade may result in the share price being halved over a period of six months. However, day trading may same the same outcome in a particular share over maybe six hours.
For some people the question of what is day trading will return the response that it involves trading inside a single trading day and having no open positions at the close of the trading session – however in reality, you could buy stock near close of business on one day and sell it the next and still be classed as a day trader for all intents and purposes.
Day trading got a lot of bad press many years ago when a lot of novice traders got involved in buying into the dot com and technology boom. When the bubble burst, as many news headlines called it, several traders were left with no investment at all.
The realities of trading stocks and shares however should not be taken lightly. As with any investment you run the risk of losing money just as quickly as you might make it. Professional traders rely on many tools and methods to reduce this risk as much as possible. They will look for key signals that tell them a stock is going to move in a particular direction and they will then make their investment decision.
Contrary to common belief it is possible to make money in stocks that are falling in price by taking up a certain position in the market.
For more information on what is day trading, please review our other articles.
