Day Trading For Dummies

Day trading is simply the buying and selling of any financial instrument in the same trading session.

This is different from investing or swing trading. In the former, the instrument, usually a stock or bond, is held for an extended time, sometimes many years. Swing trades extend over days, weeks and sometimes even months.

Day traders seek to capitalise and profit from the many price moves that occur in most instruments every trading session. For example, there have been many days when the Dow Jones Industrial Index has moved by more than 100 points. A move of that magnitude can generate literally millions of dollars in profits for an astute and capable day trader.

Day traders can and do trade everything from stocks to soy Most people believe that investing in property or shares is “safe” and that day trading is only suitable for the mega-rich or criminally insane. But the reality is that trading futures allows for easy entry on short or long positions.

Those holding shares in a bear market (a prolonged period in which investment prices fall, accompanied by widespread pessimism) are actually in a much more precarious position.

Volume often dries up making selling difficult. That’s why prices fall! Sellers drop their ‘ask’ in order to attract bids from buyers.

Electronically traded futures markets such as the eMini S&P 500 and the DJ EuroSTOXX 50 are among the most liquid in the world. Entering and exiting a position is virtually instantaneous.

Forex turnover is an estimated 3 trillion dollars a day. Slippage, where you achieve a lower sale price than asked, is actually very rare.

Futures contracts allow for highly leveraged positions.Of course, if traded without a logical exit strategy, leveraging can quickly contribute to a trader’s demise. However with sensible money management using a strict stop loss strategy, leveraging enables a winning trader to make greater profits with a much smaller Brokerage for electronically traded futures contracts is a fraction of the cost of trading shares.

The world’s electronically traded futures markets are available 24 hours a day, five days a week. And the really enticing part is that traders can experience it all from the comfort of their home using a typical home computer.

Risks in Day Trading

When trading shares or property, assuming you are not leveraged, you can only lose your initial investment if you make a poor trading decision and price moves against you. Trading futures, on the other hand, carries with it the risk of losing more than your original investment because you are leveraged 100% of the time.

However, the risk is easily eliminated by setting, and sticking with, a suitable stop loss strategy. This strategy is implemented at the time of entry. It is also essential to stay in contact with your trade. As intraday traders, that should be no problem.

Using these two simple rules, a sound stop loss strategy and monitoring your position, a trader is able to participate in highly liquid and volatile markets with minimal outlay and at no greater risk than trading stocks or property.

I hope this give you an good understand about day trading.

Happy trading.

John Howell