In either of the two market extremes, the bear market environment or raging bull market, swing trading proves to be a rather different challenge than in a market between these two extremes. In these extremes, even the most active stocks will not exhibit the same up-and-down oscillations as when indexes are relatively stable for a few weeks or months. In a bear market or bull market, momentum will generally carry stocks for a long period of time in one direction only, thereby confirming that the best strategy is to trade on the basis of the longer-term directional trend.
Read books and articles on trading. Consider getting mentoring from someone you have followed and who's method you feel would work with your personality and needs. Invest in your own education, not trade signals you pay for each month or expensive subscriptions—these only serve to make you reliant on someone else. Invest in yourself from the start. That way, no matter what happens you have the skills to get the job done, on your own.
By holding overnight, the swing trader incurs the unpredictability of overnight risk such as gaps up or down against the position. By taking on the overnight risk, swing trades are usually done with a smaller position size compared to day trading (assuming the two traders have similarly sized accounts). Day traders typically utilize larger position sizes and may use day trading margin of 25%.
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Buying on margin can greatly increase your gains or losses. Brokerages usually allow a bigger margin percentage for a day trading account but reduce the amount of margin available for positions held overnight. Normally a day trading account must have a minimum of $25,000 and can buy on margin at a rate of 4 to 1 giving you $100,000 in buying power, which is called day trader buying power. That number drops to 2 to 1 for positions held overnight, which can be called overnight margin buying power. That means that if you have 100% of your margin being used during the day, you must exit at least half of your positions before the close of the trading day.
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The next important step in facilitating day trading was the founding in 1971 of NASDAQ—a virtual stock exchange on which orders were transmitted electronically. Moving from paper share certificates and written share registers to "dematerialized" shares, traders used computerized trading and registration that required not only extensive changes to legislation but also the development of the necessary technology: online and real time systems rather than batch; electronic communications rather than the postal service, telex or the physical shipment of computer tapes, and the development of secure cryptographic algorithms.
Retail day traders are competing with professionals. Pros know the tricks and traps. They have expensive trading technology, data subscriptions and personal connections. They’re perfectly outfitted to succeed, and even then they often fail. Among these pros are high-frequency traders, who are looking to skim pennies or fractions of pennies — the day trader’s profit — off every trade. It’s a crowded field, and the pros love to have inexperienced investors join the fray. That helps them profit.
The swing trader, therefore, is best positioned when markets are going nowhere – when indexes rise for a couple of days, then decline for the next few days, only to repeat the same general pattern again and again. A couple of months might pass with major stocks and indexes roughly at the same place as their original levels, but the swing trader has had many opportunities to catch the short-term movements up and down (sometimes within a channel).
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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.
Scalping can appear easy because a scalper might make an entire day's profit within a few minutes. However, in reality, scalping can be quite challenging because there is very little room for error. If you do decide to try scalping, make sure that you do so by using a trading simulator, until you are consistently profitable and no longer make any beginning mistakes, such as not exiting your trades when they move against you.
Day traders are attuned to events that cause short-term market moves. Trading the news is a popular technique. Scheduled announcements such as economic statistics, corporate earnings or interest rates are subject to market expectations and market psychology. Markets react when those expectations are not met or are exceeded, usually with sudden, significant moves, which can benefit day traders.