Day Trading is a successful strategy of Technical Trading.
Day trading is used successfully by some of the most dedicated, intelligent and emotionally strong technical investors who rely on such trading for their livelihood - they have the time, money, perserverence and ambition required.
These types of investors have at least $200,000 to invest in stocks, commodities or indexes such as FOREX and then leverage their principle on margin to make trades on medium to large capitalized stocks and other types of securities.
To open a day-trading account requires $25,000 minimum in reputable brokerage services.
Day Traders buy or short positions and then close such positions before the day is over at least a few times a day but usually far more. Per year number of day trades could add up to the thousands.
Such trading attempts to make tiny percentages (fractions of a percent or more) of profit on leveraged investments per trade on average.
Trades are closed within the day to avoid the risks involved with after hours trading which can dramatically and unpredictably affect share prices when the market opens the next day.
The success is dependent primarily on the following investor traits and factors:
• Must be able to predict the correct price perhaps 30% to 50% of the time and skillfully set stops to minimize losses if/when the price moves the wrong way, which is often.
• Must be an experienced/seasoned technical trader who works three or more accounts at a time and several algorithmic technical formulas and multiple time frames at one time when trading to provide more insight, latitude, accuracy, diversity, and to limit risks in trading decisions and/or when running low on margin.
• Must be able to program and use sophisticated technical software to make trades. But even these programs must be monitored continuously to outwit other successful technical traders using similar high tech programs.
• Investment firms are the individual day-trader's greatest competition as they have the skills and most advanced intelligent algorithmic day trading programs in the world.
• Must be continuously on high alert - being prepared to make quick accurate decisions to trade stocks many times a day, thousands of times per year.
• If trading on the Nasdaq, must trade and compete with broker-dealers. Broker-dealers typically hide some of their trades of a stock by trading some or many shares on an ECN (discussed later). Broker-dealers are also efficient at disguising their true trade intentions. This creates problems for day traders as any technical program or tool is unable to account for unseen trades and the games broker-dealers play.
• Emotionally, must be able to handle making many bad trades. A tiny profit is all that's really required when proper stop orders are in place to limit losses of unsuccessful trades.
• Must be able to sit in front of a computer for up to 8 hours at a time to track price movement and trader volume, and outguess potential technical strategies of competing traders and market makers (broker-dealers) within moments. Algorithmic smart programmable trading software cannot totally be relied upon.
• Must leverage investment on margin, place appropriate stop orders, implement the latest complex three tier technical formula trading strategies, work several trading accounts, and trade thousands of times per year.
• Will likely make enough successful trades to earn a 15% to 30% profit per year and maybe much more on his leveraged investment. Some make well over 100% on their total investment per year.
Not many investors have these personal qualities or care to trade that intensely day after day, minute after minute especially for months or years at a time.
Because of the high leverage and huge investment required to make many trades per day - many trades of which the investor will likely lose - day trading, including swing trading, can be very mentally exhausting, risky, and time intensive with little to show for his/her heroic efforts per trade.
• Only a special type of person will thrive in this type of trading environment.
• Only 2% of such traders will be very successful.
Two types of day traders are scalpers and momentum traders.
• Scalpers trade within seconds to minutes many times a day with the intent of gaining a fraction of a percent of profit per trade on tiny ups and downs in price movements in a stock's share prices.
These tiny price movements are created mostly by investors who are attempting to outwit other investors or market makers for a profit through the use of complex technical algorithmic formulas or just common sense mixed with experience, or some of both.
• Momentum Traders invest/trade at least three times a day in an attempt to make a tiny profit on tiny patterns/trends in share price activity.
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