What is Day Trading?
Day trading is the buying and selling of a specific financial instrument, mainly a particular stock or currency pair, within the same day. Due to the volatility found in the stock market and in Forex markets, those are the two most appropriate markets in which to use day trading. Currency trading is used to cash in profits on a rather short-term basis when done successfully.
How Forex Trading Works According to Experts
While the basics of day trading seem simple at first, just buy a stock and sell it on the same day when the price goes up. In reality, more than 90% of investors that start with this type of trading lose money and end up quitting.
Most experts don’t take the long and painful road of long-term investment. They have acquired the right knowledge and through experience they have come up with tips, methods, and techniques to be successful in day trading. In this section we will tell you the basics about how day trading works from the perspective of the experts. This way you will be benefiting from valuable material that it would have taken you years to come up with by yourself.
The first thing you need to have to succeed in day trading is to have your emotions under control. If you are investing money that you have destined for important things such as your children’s education, forget about it. The more you focus on the money, the more your chances of making emotional and sudden decisions in this market. Therefore, in order for Forex trading to work for you, you need to think with a cold head. The first thing experts have is a plan regarding how many trades they plan to do any given day, the amount they can afford losing and exit strategies in both successful and unsuccessful trades. This is the reason, why they are called experts, they are aware of the variables around their trading sessions and they have a plan of action for each scenario that could present itself in the stock market.
Experts know the Mathematics of day trading, which are summarized in you have to out beat your losses with your wins plus a margin. Explained in a simpler manner, if you invest $100 and the stock went down $15, it means that particular stock went down 15%. If the stock is now at $85, it would have to go up more than 17% to reach $100 again. This is not a zero sum game. For every loss you have, you have outperform the percentage of your loss in order to recuperate your money. You can be ahead of the game using an appropriate stop/limit ratio in all your trades.
Day trade experts don’t trade every single day. In fact, they wait for the opportunities in which it is more probably that they will end up with a win. Again, this also requires emotional control. In fact, this is their secret. They will only trade when they see that their probability of winning will be at least 2.5 times more than their probability of losing.
Benefits of Day Trading
· You can have money available almost every day if you get profits instead of waiting for years as some trading strategies suggest.
· If you have less than $8,350 in profits with day trading, you will be taxed with a lower rate than the average income tax bracket.
· It allows you to learn to trade faster because you will be making many trades in any given day as opposed to the usual 1 or more trades a month in long-term trading
· It is emotional uplifting on a short-term basis for successful traders.