Day trading stocks
BUYING AND SELliNG IN MINUTES :
Unlike investors, who may wait years before selling, day traders buy and sell within seconds, minutes, or hours. Day trading is an extreme trading strategy that involves constantly moving into and out of stocks. Using technical analysis, professional day traders try to anticipate where a stock will go in the near future and trade accordingly. Usually, day traders sell their stocks and move to cash by the end of each day. Day traders can trade from their home or trade stocks at a day trading firm, which provides high speed telephone lines and customized trading software. Although there have always been day traders, this strategy became particularly popular during the late 1990s. in fact, so many people were trading stocks from home and they were called online traders.
An online trader can use a number of short-term strategies besides day trading. For example, swing trading involves buying a stock early in the week and selling it a few days later. Another short-term trading strategy, called position trading, is to buy stock and hold it for a few months. Some traders follow the trend of the market, buying when the market is trending up and selling when the market is trending down. Even with the best equipment and software, however, only a small percentage of people are actually able to make money consistently by day trading. First, it takes an incredible amount of discipline, trading capital, and knowledge to be a successful day trader. Most people do not have the patience to sit by a computer all day and watch stock positions. Although day traders can make money on occasion, it is an extremely difficult game to play unless we have the power of a bull market behind us.
II. MARKET TIMING:
A Controversial and Difficult Strategy:
With market timing, predicting in advance about the stock or the market is headed. Then day trader makes a move before the market does. For example, if he believes that the market will rise in the next week, he will shift his money out of cash or bonds and into stocks. The idea is to shift the money to the most profitable investment before it goes up. Market timing is a risky strategy that can cost the day trader if he makes the wrong bet. To be a successful market timer, he must know not only when to get into the market, but also when to get out, which is why so few traders are successful market timers. Timing the market is difficult for most people. However, that has not stopped people from trying.
III. SHORT THE RALliES:
The Opposite of Buy and Hold:
A very effective, but rather risky, trading strategy is to short the rallies. Instead of buying more stock when the market falls, the trader must do the opposite. When the market or his stock goes up a lot, he must sell short i.e. he must sell the stock, then buy it back at a lower price. Shorting the rallies is extremely risky, although it worked quite well for several years. After all, stocks go down faster than they go up. Nevertheless, day traders must keep in mind that successfully shorting the rallies takes a tremendous amount of time, skill, and patience. If he is wrong and the stock keeps rising, it takes considerable discipline to buy back the shares for a small loss.
IV. EXCHANGE-TRADED FUNDS:
Trading exchange-traded funds (ETFs) has recently become popular with traders and investors, including many professionals. An ETF is an investment product that is similar to a mutual fund, but that trades like a stock. We can buy and sell ETFs on any major stock exchange just as a stock. Because of the sudden popularity of these investments, new ETFs are being created all the time. Just like those of stocks, prices of ETFs change continuously during the day. The advantage of trading ETFs is that they are cheap, liquid, and tax-friendly. Because they consist of a basket of individual stocks, ETFs provide instant diversification. After all, it would be too costly and time-consuming to buy so many individual stocks on our own. As they are similar to stocks, we can buy or sell ETFs through brokerage firms or Internet broker. The disadvantages of trading ETFs are similar to those of trading stocks, paying commission when buying or selling. In addition, because ETFs are relatively new, they have not much of a track record.
V. TRADING ON NEWS:
Like day trading, trading stocks based on the news is a difficult method to play and win. It is impossible to know how the market will react to news about the stocks. There is a wise old saying: Buy on the rumor and sell on the news. Often a stock will rise or drop in price in anticipation of a news event, such as an earnings release or a Fed meeting. Once the news is release, however, the stock will go in the opposite direction, which explains why it is so difficult to buy or sell stocks based on what is in the news. In reality, news is coming from dozens of different directions : newspapers, magazines, the Internet, television and friends. The hard part is figuring out which information is valuable and which should be ignored. It is amazing how wrong people have been about the market. Most of what people tell about the market is useless. Nevertheless, we must keep in mind that stocks go up or down based on what people perceive to be the truth.
VI. SUMMARY:
Day trading is a skill, nothing more. Whoever has more skill makes more money. It is that simple. Some people are able to make millions trading stocks, while others find out in matter of months that they can not make a dime. Part of the skill knows how the system works and the other part is exploiting it. There is no doubt about it, online trading is catching fire. In the matter of a few short years, the Internet has changed the very landscape of investing. Trading stocks has never been cheaper or more accessible. Against this backdrop, a new breed of entrepreneur, the internet day trader, has emerged. Internet day trading the practice of buying and selling stocks over the Internet for quick profits and it can be one of the most lucrative jobs on the face of the earth.
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