We wrote this article as a beginner’s guide to day trading online to give you more information about in day trading online.
Buying and selling stocks, currencies, future contracts etc. on the same trading day is referred to as day trading. It is considered to be a highly risky form of stock investment. Online Day traders indulge in rapidly buying stocks and selling them off the same day.
This type of day trading online is done with an aim to secure quick profits and is based on hopes of stock prices rising and falling within the short period that the stocks are traded during the day. Some people dabbling in stocks feel that settlement before the market closes for the day is contrary to market wisdom of allowing the profit to run. However, day trading helps traders to avoid any risk of price gaps. Price gap is the difference between the price at which the market closed at the end of a day and the price at the time the market opens the following day.
If things work out favorably, day trading online can provide very good profits as it yields quick returns. The risk factor however is very high and traders who are prepared to take the risk stand to generate high returns for themselves within minutes or hours of trading. Many traders do online day trading taking advantage of advancement in electronic communication and the huge benefits available through the use of the Internet.
The convenience of online day trading is contributing to its increasing popularity.
When indulging in online day trading it is important to work according to tested and tried strategies established overtime. Here are some strategies that every prospective trader should consider before going ahead with online day trading.
Identifying and following market trend
– When there is a rise in financial instrument prices it is usual for day traders to assume that the rise will continue and assume a continuing decline when a decline starts. Day trading is based on ‘trend following’ in which traders buy rising financial instruments and short sell when prices start falling assuming that the trend is going to continue. For example, as a day trader just as there is good news and the price for ABC stocks begins to rise you buy 1000 shares of stock ABC at price X at 10:35 am and then sell it again at 10:39 am when the price ups by 1/2 i.e. $0.50.You make a cool $500 within minutes which even after paying the typical commission of about $30 for a trade leaves you with $440 after your buy and sell activity.
Using Range Trading
– Under this strategy an expected price range comprising upper and lower price levels for both rising and falling stocks is identified and stocks are sold as they reach near the upper price levels in the range. This applies both to rising and falling stocks.
– Scalping is also called quick trade or spread trading. In scalping settlement is done very fast; within minutes or even seconds of trading leading to quick high returns.
– This is one of the most popular strategies employed by day traders who implement this strategy to gain quick returns. The playing news strategy consists of buying stocks that offer good returns and selling stocks with bad returns.
Despite its huge popularity and the various strategies that can be used to generate handsome profits, day trading online is not everyone’s cup of tea. Along with good profits the risk factor is also very high. Statistics reveal that out of the total day traders 80-90% lose money; only about 10-20% are able to make gains. Some say you have only a slightly better chance of making money day trading than you do in a casino. Day trading is expensive and requires full time involvement. However, financial discipline, quick decisions, money management and risk taking can make day trading online a potentially profitable business, even for a beginner.