Day Trading the practice of buying and selling stocks or financial instruments within the same trading day, such that all positions are closed before the market closes for the trading day. Traders that participate in day trading are often called active traders or day traders.
Some day traders use an intra-day technique known as scalping, usually holding a position for a few minutes or even seconds and extracting gains quickly. This scalping technique might be beneficial if trading a stock with recent news, or at the open of the market when prices are volatile.
Many day traders use alert and news services to base their day trades or scalping.
When day trading there are a few things you should keep in mind:
- How much capital you’re willing to risk on each trade, most successful day traders generally risk 1-2% of their total account per trade.
- Day trading is not like swing trading or long term investing, you need to be monitoring your investment until you are out of the trade.
- Careful with volatility, some stocks are more volatile than others, specially penny stocks.
- Timing your trades is also very important. The open and close normally are more volatile than the middle of the day.
- Cut your losses if a stock trade is not going your way, better to loose 2% than 10%.
- Stick to your plan, if the trade is not going as you planned, get out. If it goes your way, get out at your plan and leave a percentage trailing to maximize gains.
- Remember to have patience and stay cool. As a day trader you need to learn to keep greed, hope and fear at bay. Decisions should be governed by logic and not emotion.
There are times when day trading to use limit orders, and there are times when it’s best to place market orders. Use the strategy that best fits your trade plan and movement of the stock.