What is Day Trading?
It is the act of stock trading; selling and buying stocks on the same day. The aim here is to leverage capital and capitalize on marginal movements in price to make profits. A usual day trader may trade several times a day and may choose to hold positions only for a short time. It could be seconds or minutes and never overnight.
Intraday Trading basically engages taking positions in the markets with a clear objective of squaring off that position before the end of trading time in the stock market. The main motive of the day trading is to capitalize on fractional movements in price within one trading day. This can be advantageous for traders because there is lowered risk exposure to probable loss coming out of factors that can affect prices of the stocks in the following days.
There are several investment strategies involved in online trading. On the other hand a day trader would look for two factors in a stock: volatility and liquidity. Volatility is an indicator of the daily expected price range; the range in which the trader would like to function while liquidity permits you to take a position or exit at a feasible price.
Classifying the type of stocks with a target price would largely depend on the investor’s trading style.
Some of the frequently used days trading strategies include:
1. Momentum Traders:
The momentum trading strategy normally involves buying/selling that exhibits a trendy pattern or is affected by news release. The plan here is to buy a stock at low prices and sell them at a higher price.
This is one of the popular and important strategies that engage cyclic and fast buying/selling of stocks within seconds or minutes. The target price here is to get profitability per share with each transaction having the minimum risk.
3. Daily Pivots:
This style of trading engages profiting from a stock’s volatility. The effort is to buy at the low of the day and sell at the day’s high price. The price target in this style is at the sign of a turnaround for profitability.
There are many advantages to day trading like increased leverage and zero overnight risk because of low margins as the trades are squared off on the same day.
The non-exposure to potential losses arising out of external factors makes it safe to trade.