Many professional money managers and financial advisors shy away from day trading arguing that, in most cases, the reward does not justify the risk. Conversely, those who do day trade insist there is profit to be made. Day trading profitably is possible, but the success rate is inherently lower because of the complexity and necessary risk of day trading in conjunction with the related scams. Moreover, economists and financial practitioners alike argue that over long time periods, active trading strategies tend to underperform a more basic passive index strategy, especially after fees and taxes are taken into account.
There are two primary divisions of professional day traders: those who work alone and/or those who work for a larger institution. Most day traders who trade for a living work for a large institution. These traders have an advantage because they have access to a direct line, a trading desk, large amounts of capital and leverage, expensive analytical software, and much more. These traders are typically looking for easy profits that can be made from arbitrage opportunities and news events, and these resources allow them to capitalize on these less risky day trades before individual traders can react.
These developments heralded the appearance of "market makers": the NASDAQ equivalent of a NYSE specialist. A market maker has an inventory of stocks to buy and sell, and simultaneously offers to buy and sell the same stock. Obviously, it will offer to sell stock at a higher price than the price at which it offers to buy. This difference is known as the "spread". The market maker is indifferent as to whether the stock goes up or down, it simply tries to constantly buy for less than it sells. A persistent trend in one direction will result in a loss for the market maker, but the strategy is overall positive (otherwise they would exit the business). Today there are about 500 firms who participate as market makers on ECNs, each generally making a market in four to forty different stocks. Without any legal obligations, market makers were free to offer smaller spreads on electronic communication networks than on the NASDAQ. A small investor might have to pay a $0.25 spread (e.g. he might have to pay $10.50 to buy a share of stock but could only get $10.25 for selling it), while an institution would only pay a $0.05 spread (buying at $10.40 and selling at $10.35).
Scalping is a trading style that specializes in profiting off small price changes, generally after a trade is executed and becomes profitable. It requires a trader to have a strict exit strategy because one large loss could eliminate the many small gains the trader worked to obtain. Having the right tools such as a live feed, a direct-access broker and the stamina to place many trades is required for this strategy to be successful.
This article is going to go in-depth about a key swing trading technique on daily charts. While this may be considered advanced swing trading, this strategy is suitable for all investors. It is perfect for home study. We will tell you how to do proper technical analysis and show you when to enter the trade and when to exit the trade. We will do this by teaching you how to set the right profit target.
Day trading is traditionally defined as buying and selling stock, options, or commodities during the same trading day and be have your positions closed by the end of the trading session. In the past, day trading had been reserved for financial companies and professional investors. A large percentage of day traders work for investment firms or are specialists in fund management. With the advance of technology, day trading has continue to grow among the casual trader working from home.
There is a commonly quoted statistic that only about 5 percent of day traders succeed. This is a good approximation. Most people who try day trading will not succeed, yet most of them do not practice everyday for six months to a year either. Time investment and quality practice increase a day traders chances of being in the 5 percent that are successful.
You're probably looking for deals and low prices, but stay away from penny stocks. These stocks are often illiquid, and chances of hitting a jackpot are often bleak. Many stocks trading under $5 a share become de-listed from major stock exchanges and are only tradable over-the-counter (OTC). Unless you see a real opportunity and have done your research, stay clear of these.