18 November 2020 | AtoZ Markets - Mostly professional traders or institutional traders do day trading for daily outcomes. However, it's hard for the retail investor to earn money from day trading, rather than institutions. Institutions like hedge funds make their desired profits, as they trade with large volumes. Furthermore, according to the research of the University of California by Brad Barbet in 2010, showed that only 1% day trader earns money consistently. From 1992 to 2006, the study took over 14-years to examine trades.
What Is Day Trading?
Day trading is a method that a trader buy and sell an asset within the individual trading day. It can be done in any markets, yet it mostly used in the foreign exchange (forex) and stock markets. Moreover, most day traders are professionals and work with good funds. Day trader uses high leverage to gain a massive amount in a short-term period. They like hugely liquid stocks because they can move in and move out from a position being distant from the stock's price.
Furthermore, day traders look for events that move the market on a short-term basis. Day trader's most popular trading technique is to trade on fundamental news releases to gain a huge amount of pips in just a matter of minutes. Upcoming fundamental news such as economic data, corporate earnings or interest rates is the main subjects to market hope and psychology. Markets move when that fundamental news not met or go beyond expectations. This student moves can benefit day traders.
Day traders most commonly use intraday strategies are:
- Scalping
- Range Trading
- Fundamental Trading
- High-frequency Trading (HFT)
How Day Trading Works
In one-day trading, Volatility is the ultimate game. Market’s or stock’s fluctuations are idolized by the day traders for earning their gains. Whatsoever the reason with the stock whether it has positive or negative news, well or worse income report traders are fond of stocks which jump nearly through the day. They use short-term trading strategies to build trading account quickly and catches small price movements in highly liquid stocks and currencies. Day traders may try to gain upon a stock's drop, buy a stock if it’s moving upward and may sell a stock when it’s moving downward. Traders also may trade one stock several times in a day. By holding the benefit of shifting the market's sentiment for the particular stock traders buy it one time and sell it after. They only search for a stock to move no matter what strategy they apply.
Day Trading Features
Professional day traders have to be very serious about their trading if they trade for a living rather than as a fantasy. They have to be very knowledgeable about what they're doing, too. Here are some tips for a day trader who wants to become successful in their life:
Proper Knowledge of Marketplace
Those who trade on a daily basis, if they don't have the proper knowledge of the market's fundamental ofter lose money. A day trader needs to have a piece of knowledge about technical analysis and chart patterns. It can be hoaxing for a trader without profound perception about the market and the existing asset or stocks in that market. For a day trader, it's mandatory to understand the particular entries and exits if the asset they trade.
Adequate Resources
A professional day trader uses only risk capital they can afford to lose. This not only safe them from unwanted loss, but it also helps extract emotion from their trading. A huge amount of capital always essential to build a trading account effectively on day trading movements. Besides, having a margin account is the key, when the market turns volatile, it can give you a short notice.
Strategy
A day trader needs to know every corner of the market. Many traders use many trading strategies including swing trading, arbitrage and fundamental trading. A day trader backtests these strategies until the profit outcomes are consistent, and losses are limited.
| Strategy Disruption | ||
| Type | Risk | Reward |
| Swing Trading | High | High |
| Arbitrage | Low | Medium |
| Fundamental Trading | Medium | Medium |
| Mergers | Medium | High |
Trading Accounts
Besides your trading strategy, you will need a suitable trading account. There are many types of trading accounts are available, but you need to find one that suits your trading style.
- Cash Account: Cash account, also known as without margin account. These type of account allow you to trade that only capital you deposited in your account. It may reduce your profits, but it also restrains you losing more than you can afford.
- Margin Account: By these types of trading account, you can use high leverages. It may give you the opportunity to earn potential profits, but also comes with a more significant risk, which may blow up your whole account—this not the way out if you want to begin day trading with the minimum capital.
Day Trading Discipline
A Day trading discipline is must, and without it, a profitable strategy has become useless. Many day traders lose huge capital because they fail to follow the trading discipline while becoming greedy. There is a very famous quote in trading, "Plan the trade and trade the plan". Without proper trading planning, its impossible to become successful. A day trader always depends on high volatility market. When an asset moves a lot during the day, it becomes attractive for a trader. Volatility may increase depending on the corporate earnings reports, investor's psychology, or even general economic or other fundamental factors. In addition, a day trader looks for high liquidity market because that gives them the opportunity to gain profits.
Summary
Those who want to trade for a living, a day trading can be the best option for them. Though day trading becomes a bit controversial, it can be a good way to achieve positive outcomes. By keeping the markets efficient and liquid, an institutional trader and retail trader play significant roles in the market place. Despite being popular amidst inexpert traders, it should be left for starters.