Scalpers buy low and sell high, buy high and sell higher, or short high and cover low, or short low and cover lower. They tend to utilize Level 2 and time of sales windows to route orders to the most liquid market makers and ECNs for quick executions. The point-and-click style execution through the Level 2 window or pre-programmed hotkeys are the quickest methods for the speediest order fills. Scalping is purely based on technical analysis and short-term price fluctuations. Due to the extensive use of leverage, scalping is considered a high-risk style of trading.
Day trading is speculation in securities, specifically buying and selling financial instruments within the same trading day, such that all positions are closed before the market closes for the trading day. Traders who trade in this capacity with the motive of profit are therefore speculators. The methods of quick trading contrast with the long-term trades underlying buy and hold and value investing strategies. Day traders exit positions before the market closes to avoid unmanageable risks and negative price gaps between one day's close and the next day's price at the open.
Due to the increased leverage and quick returns, day trading can be extremely profitable. The downside is that if done incorrectly, it can also be extremely unprofitable. Due to the high volatility of day trading, some people have labeled Day Traders as gamblers or adrenaline junkies. However, many people make a very consistent and comfortable living from day trading. Some even make millions of dollars each year.
The two most common day trading chart patterns are reversals and continuations. Whilst the former indicates a trend will reverse once completed, the latter suggests the trend will continue to rise. Understanding these trading patterns, as well as ‘triangles’, ‘head and shoulders’, ‘cup and handle’, ‘wedges’ and plenty more, will all make you better informed when it comes to employing your trading strategies.
Futures are a contract that match up a buyer and seller at a specific price, with the buyer agreeing to pay that price for the asset when the contract expires in the future. The seller is agreeing to deliver the asset, like oil for example, to the buyer when the contract expires. Day traders are never required to deliver or pay for the actual asset, because all positions are opened and closed within the day (no open obligations). Profits are losses are based on the prices the contract is opened and closed at.
The goal of swing trading is to capture a chunk of a potential price move. While some traders seek out volatile stocks with lots of movement, others may prefer more sedate stocks. In either case, swing trading is the process of identifying where an asset's price is likely to move next, entering a position, and then capturing a chunk of the profit from that move.
Many orders placed by investors and traders begin to execute as soon as the markets open in the morning, which contributes to price volatility. A seasoned player may be able to recognize patterns and pick appropriately to make profits. But for newbies, it may be better just to read the market without making any moves for the first 15 to 20 minutes. The middle hours are usually less volatile, and then movement begins to pick up again toward the closing bell. Though the rush hours offer opportunities, it’s safer for beginners to avoid them at first.