With a rise in technology has come a new wave of traders in the stock market. Where once the industry only consisted of individuals working for financial institutions, the ability to trade online has created a completely different environment. With software and applications making trading endeavours even easier, it seems like almost anyone can get into the niche and make some worthwhile gains. In reality, methods like day trading can be challenging to say the least and will require both planning and dedication to see success.
What is day trading?
At its core, day trading is centred around buying and selling financial securities within the day’s trading sessions. This can occur anywhere within 24 hours and mere seconds, depending on a host of factors. The trader aims to exploit price movements in the market with profit in mind. This typically occurs on the stock market and the foreign exchange (also known as forex).
While this may sound like a simple process, day traders should have an intricate understanding of both the industry and its functions, as well as the financial services and instruments on offer (as there are many more than those necessary for other trading methods). For example, traders should ideally have:
- An appropriate trading plan – Research and make an informed decision on whether you’d like to focus more on technical analysis, fundamental analysis or a mixture of both.
- Analytical software - this usually comes in the form of automatic pattern recognition, broker integration, genetic and neural applications and backtesting protocols
- Connections with multiple news sources - for many day traders, the news can be an important resource. After all, the quicker they have access to trending information, the faster they will be able to act and make educated market moves
Alongside this, traders will need to have a range of strategies to hand to increase their potential when trading. These can include scalping, range trading, news-based trading and high frequency trading (HTF).
Technical analysis will be pivotal in the potential profit that can be made, so strategies are important to day trading. Without an understanding of how to gain insights from market observations, price and volume movements in stock, or even how current events have an impact, traders will potentially fall behind the competition and lose out on worthwhile trades much more often.
The risks of leveraged trading
There are risks that come with this trading vehicle and it’s important to be aware of them before making the decision to put any money on the line. Studies suggest that losses are far more common in the early months of day trading, and many of those starting out without the right knowledge or support may never see returns.
The trading niche is currently over-saturated, due in part to the numerous stories out there of overnight millionaires. This means that it can be difficult to acknowledge that day trading can be a full-time job. Those trading will need to be dedicated to their efforts, so it’s not an endeavour that’s to be undertaken lightly.
It’s also worthwhile to keep in mind that borrowing money will be part of the trading process, especially for those who want their trades to reach their full potential. Without leverage from third-party investors, significant profits aren’t likely to happen.
Final thoughts
With the right funding, tools and know-how, day trading can be lucrative, but even experienced traders won’t achieve their goals without hard work. If you’d like more information, sites like fca.org.uk can be helpful. You can also read more about day trading for a more in-depth insight into the nuances of this method and much more here: CMC Markets
Disclaimer:
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. The vast majority of retail client accounts lose money when spread trading CFDs. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.
Original Source of the original story >> Exploring the World of Day Trading: In details
