Who is a Day Trader? A day trader is someone who capitalizes by carrying out long and short volume trades on the fluctuations in the market price action. When there’s temporary inefficiency in the demand and supply, it leads to the fluctuation in market prices and it’s the point that benefits a day trading to create wealth. They carry out intraday strategies that can help them to generate profits from holding a position for some time. Day traders generally buy and sell a security within a single day.
Is there any prerequisite to becoming a day trader? No special qualification is required to become a day trader. Day traders are classified based on their trading frequency and are subjected to margin and capital maintenance requirements. Moreover, the price action of a stock is of considerable importance to a day trader, unlike the investors who need to be equipped with the data to predict the long term potential of a company’s stocks. Deciding to become a day trader wouldn’t require any specific skills at the start. However, being a successful day trader requires more than learning new skills and implementing them.
What does a day trader do? Day traders generally make transactions for stocks, commodities, currencies, and futures and typically hold positions ranging from few minutes to few hours before selling them. A day trader doesn’t hold any position overnight. They close all the trades before the end of the day as the goal remains to benefit from the small price fluctuations.
To take out maximum benefit from the trades, day traders often amplifies leverages which can also lead to amplification of losses on some occasions.
A successful trader has thorough knowledge, experience, and the right mindset. A trader employs various techniques to make a trading decision. Some traders rely on the information provided by technical software for decision making while some rely on their instinct.
The most concerning things for a day trader are average day range and price volatility. To profit from the security, a sufficient price movement is necessary. A day trader has to look for a required volume and liquidity to profit from small price fluctuation as a large capital is required for the same.
TECHNIQUES OF DAY TRADING:
Day traders employ the use of some techniques to benefit from the market inefficiencies. Most of the day traders are attuned to events that are bound to cause short-term fluctuations in the market. Some of the popular techniques are trading based on news, scheduled announcements that are expected to influence market psychology and can benefit the traders.
Another technique that is immensely used by day traders is ‘fading the gap’. This technique works well when the price of a security at the opening varies from the closing on the previous day. If traders expect that the market is going to be up, they put their money on the securities that are highly expected to show strength. In case of a market trend going down, traders sell securities that can exhibit weakness with a falling market.
As experience is the key to judgment for making a decision, most of the aspiring day traders practice day trading on simulated platforms for several months before they make an actual trade in the real market.