What is Day Trading?

Day Trading means that stock, option, commodity or currency trades are never held overnight. This short-time frame trading has some advantages and some disadvantages.

Advantages of Day Trading

•Less risky because trades are not subject to possible big overnight moves when the trader is not around to see what is going on

•Easier to sleep at night knowing there will be no bad surprises

•High number of trades seeking small profits is much easier

Disadvantages of Day Trading

•Hard to close trades that are almost making money at the end of the day

•Hard to close trades that are making money due to the urge to wait and see if they will make more money

•Easy to take bad trades out of the need to feel like you are doing something. Stock traders who are used to holding their picks for weeks, months, or even years have the advantage of time to give their trades time to go in their direction. With day trading, it is possible to pick the right direction but be wrong about how long it will take the market to make you right. Day traders have to make many quick decisions during the day because the market can move in one direction or the other very fast. Some people experience tremendous pressure under this condition and they are unable to think clearly as a result. It is also possible to get upset by seeing a trade that you closed at the end of yesterday going in your favor when you start trading the next day. You might be tempted to start holding trades overnight until you find out that it takes a whole lot more money in your trading account to do this than it does to day trade. Then, there are days when the market hardly does anything.

Many new day traders get caught in trades that should have been ignored. This makes money for their brokers, but it does not help them. It takes a lot of practice to know when to trade and when to just go do something else. Some people do not have the patience to learn how to know when this is true. Many traders decide that the advantages of day trading are more important than the disadvantages. They like knowing that bad things cannot happen overnight and that each day is like a brand new start where what happened yesterday does not matter.

 

Photo By Emmanuel Huybrechets