What is a Day Trader?

This type of trader buy and sells stock, or other financial securities, such as futures, options, or currencies, and works to make a profit from the difference between the bought and sold prices of that security. The main difference between a day trader and other types of traders is that securities are rarely, if ever, held overnight when day trading. For stock investors interested in learning about day trading, they must first understand how the stock market works as well as understand the stock market terminology associated with technical analysis .

When day trading, the investor attempts make a profit through leveraging large amount of capital in order to take advantage of small price movements in highly liquid stock or indexes. The liquidity and the volatility are two important factors that make certain stocks ideal for the day trader. Liquidity provides the ability to enter and exit out of a stock at a good price whereas volatility provides the ability to measure the expected daily stock price range. The more volatility there is the greater potential for profit or for loss when trading stock .

As you learn about the stock market and how day trading works, you will learn that there are four main day trading strategies. These include, scalping, momentum trading, fading, and daily pivots. We discuss these trading strategies below.

Scalping is one of the most popular trading strategies and it is the selling of a stock immediately after the trade becomes profitable. Fading deals with shorting stocks after quick upward movements. Fading is based on three assumptions. First, that the stock or other security is overbought. Second, the assumption is that the early buyers are ready to start taking profits. The last assumption is that the existing buyers may be scared away. Daily pivots help to profit from a stock’s daily volatility. Basically, the investor tries to buy at the low of the day and sell at the high of the day.

The last trading strategy used by the day trader is momentum trading. Momentum trading occurs when the stock trader rides the trend until it show signs of a reversal. Traders will base their information on new releases and also through trend trading . Volume analysis is a concept that many momentum traders are familiar with. Basically, trending moves are supported by high volume.

There is a lot more to day trading and it takes a lot of practice and expertise to day trade successfully. Please read about Japanese Candlesticks which is a trading strategy used by some of the world’s most successful traders along with other forms of technical analysis. It is the fastest way for new investors to quickly and accurately read stock charts when trading stock. Once you are comfortable with the major candlestick signals, expand your expertise by learning the secondary Candlestick Patterns . Combine these with your favorite technical analysis indicators, such as the moving average , and you have the perfect trading arsenal for evaluating stocks, currencies, commodities, or exchange traded funds .