Day Trading Stocks Tips for New and Seasoned Stock Traders
Day trading involves purchasing and selling securities within the same day. This can take place in any kind of market but is most common in the stock market and foreign exchange market. Most of the time, day traders are well funded and they often borrow money to take advantage of the small movements of price of highly liquid indexes or stocks.
Day trading stocks serves two critical functions. It keeps the markets running efficiently through arbitrage and it also provides much of the liquidity in the market. Generally, day traders use the trading strategies that longer term investors use. One of them is trying to buy low and sell high. However, they have to do this within a compressed time frame.
The following is an example of how day trading usually works: A trader can buy 1000 shares of a particular stock and 9:00 a.m. At 10:00 a.m., the price of the shares may start rising and the trader can then choose to sell them. If price of the stock rises by 0.50 when the trader sells, he or she makes 500 dollars minus a commission.
The commission on the stock transactions may range from 7 to 27 dollars and this means that the day trader will make a net profit of about 493 to 473 dollars. From this amount, taxes have to be deducted at the trader's personal gains rate. This can be as high as 35% because short term capital gains are taxed at a higher rate than long term capital gains.
Day traders make many trades in a day and they therefore multiply their profits by increasing the volume of trades. In order to reduce their risks, day traders generally ensure that they sell all the stocks they bought before the day ends since prices can change radically from one day to the other. Corporate announcements and new events usually drive the market volatility experienced in day trading stocks. For this reason, traders need to be available and ready to respond to changes in share prices at a moment's notice. Day traders usually move fast, making decisions in minutes or even seconds.
There are certain traits that successful day traders have. They include exercising discipline in trading decisions, having a plan and trading using a proven approach with stocks that are suited to that strategy. The main challenge in day trading stocks is determining the stocks that can enable a trader to fully leverage and profit from a chosen strategy.
It is also essential for day traders to understand market fundamentals in order to succeed with this type of trading. Having adequate experience in trading and investing in various markets is essential. It is also essential to research the stock market constantly using the services offered by full service online brokerage accounts or the information provided in publications such as the Wall Street Journal.
Utilizing technology is also essential when day trading stocks because electronic communication networks play an essential role in day trading. Traders use computers and high speed connections to access these networks. It is also essential to utilize analytical software to manage accounts, execute trades and receive information as well as to search for trades.