Day trading is defined as the buying and selling of a financial security within a single trading day in attempts to extract profit from the market. Most experienced day traders only spend one to three hours for trading each day, while the rest of the day is spent mostly for practice. Day traders usually take advantage of small price movements that occur in a short period of time by leveraging large amounts of capital. As easy as this may sound since it only involves a short time frame, successful day traders need huge amounts of preparation and education before they make consistent profits. It is a common misconception that day trading is a get-rich-quick way of making money as it poses a higher risk of losing money than a chance of making profits.
Essential characteristics of a day trader
- Knowledge about the market
Just like with any kind if trading, knowledge is very important in order to become successful. A day trader can only be successful if he knows the usual behavior of the market, the factors that can affect it, and the time when the market is more profitable. Any person who engages in a trade without knowing the basics usually ends up losing money.
- Trading experience
Knowledge alone would not suffice. Even if a beginner does not have experience in real trading, lots of practice with a demo account can make a huge difference. This experience is not accumulated in a single day of practice. Some even spend as long as 6 months just to prepare for day trading.
- High capital
Day trading can only be profitable if a trader leverages high capital. If a day trader only has a small capital, even winning in a trade which involves a small price increase can be insignificant. Access to large amounts of money or high leverage ratio is the only way to secure bigger profits in day trading. However, day traders can only risk the capital that they can afford to lose because they can never have an assurance that they’ll get into a winning position.
- Effective strategy
A day trader should not enter a trade unprepared. Before the market even opens, they usually have strategies on hand. These vary from swing trading, arbitrage, trading news, and others. These strategies are further developed until they produce consistent profits and effectively limit losses.
- Access to resources
A day trader must make sure that he has an edge over the other traders. As there is a lot of risk in day trading, having access to helpful resources is of big help. These resources may include dealing desks, brokerage firms, market news, analytical software, and many more.
“Plan the trade and trade the plan”. Having a trading strategy and access to analytical software is useless if the day trader himself does not have the discipline to consistently follow his plans and do his job in analyzing before making decisions.
There are 2 types of day traders
- Dependent day trader
This kind of trader usually handles another person’s money or trades only his own. Only a few of them have an access to a dealing desk, which is a downside. However, most of them have strong ties to brokerage companies because of the high amount of capital they use. They usually use technical analysis and swing trades to help generate profits. Despite all this, it is still not enough compared to the resources of day traders for large institutions, thus putting them at a greater risk.
- Day trader for large institutions
These traders have a direct line to dealing desks, access to large amounts of capital and leverage, and expensive analytical software that are usually paid for by the institution. Their resources lessen their risk so they often make easy profits with day trading.
Read more about the different kinds of traders you commonly see.
Day traders should learn how to be flexible in developing their strategies because there are no two trading days that are alike. They should always be ready for any changes that might affect the market. Like other types of trading, a day trader needs hard work and effort in order to become successful. There is no such thing as an easy way to make money. Fast, maybe, but with equivalent higher risk. Commonly quoted statistic says that only 5% of day traders are profitable. Hard work and practice increase the chance to be a part of this 5%.
It also helps to be partnered with the best. Trade12 is a reputable online trading broker that offers leverage as high as 1:400, making it the best for day trading. Offering MetaTrader4, a day trader can have access to several features that can help him secure profits like interactive charts, high speed execution of orders, and live streaming of market prices. Trade12 also offers the service of ECN brokers who are always available to guide their clients. With the numerous online trading reviews available, anyone can be assured that Trade12 is really trustworthy. Register an account now and become a successful day trader!