Day Trading Basics

A means to survive, an avenue to progress and vista to exchange thoughts, ideas and feelings… ‘Trading’ is perhaps as old as human existence on earth.

It all began when the primeval man began swapping small useful items with each other in order to live and fulfill many of his needs.

The time that followed saw a persistence and enhancement of this tradition. The current world runs on trading. It is a means to fetch bread and butter to many while for a large number of people trading business serves as toppings on a well-made cake. Trading therefore preserves an unparalleled significance across the globe.

This article will educate you about the various types and means of day trading, key terms and issues associated with it along with their benefits and shortcomings.

Types of Day Trading- depending on the time period for which the day trader retains the stocks with him or under his custody, different types of trading are classified.

• Basic Day Trading- Day trader commences the day by collecting stocks keeps them for sometime and endeavors his best to sell all of them at the end of the day. His primary work constitutes the sale and purchase of stocks. These transactions enable him to bag good short-term profits and mitigate the risk of sale of stocks in a fluster due to fluctuating price.

• Swing Day Trading- the day trader preserves the stocks for relatively longer period of time such as for few hours and few days to accrue big profits. But swing trading runs the risk of unstable market prices of the stocks.

• Position Trading- as the name suggests, the trader purchases the stocks and arrange the sales keeping in mind the position or the market value of the stocks. This may entail keeping the stocks for few weeks and even months, but good returns usually follow.

• Online trading- can be of any of the three aforementioned types but the sale and purchase of stocks is done via the Internet. Since this trading is through the medium of computer, an efficient computer with a 24-hour Internet connection is an essential requirement.

Issues behind S & P- When it comes to day trading, it is found that some particular stocks are good or beneficial than others. Primarily there are three factors that govern the sale and purchase of stocks-

1. Liquidity of the stock- Liquidity designates the amount of buyers and sellers for the stocks concerned. Liquidity of the stock is deemed to be directly proportional to profits ensued by it. Greater the liquidity of the stocks, higher is the comfort in vending them. But the liquidity value is never stagnant. It too depends on certain factors such number of share holders, outstanding shares, volume of transactions made and the number of market makers.

2. Volume- contributes to the liquidity factor. It can be conveniently evaluated. For instance a day trader’s stock should trade a minimum of 500000 shares each day.

3. Volatility- stands for the ups and downs the stock experiences everyday. If the volatility is less or negligible then the stock does not undergo any fluctuations and is thus rendered bad for day trading. It is believed that stocks that are considered good go through at least a $2.00 variation per day of normal trading.

4. Price Transparency- is the term coined for the market depth and the potential of the trader to acquire knowledge about the order of the stock.

General Tips for successful day trading-

• Study the market carefully before proceeding with purchase of stocks. The market indicators displayed on television and announced on radio are the best means to know about the market trend for the day.

• Do not be motivated by profits always. Every transaction may not translate into profits. Adopt a strategy and stick to it. Don’t flip your technique of working frequently.

• Be resolute and patient. If you are unable to incur spontaneous gains, profits may occur eventually.

• Never forget that day trading is a risky business and where there are profits there are losses too.