What is Day Trading? - The Basics

What is Day Trading? - The Basics

Day trading is the practice of buying and selling financial instruments, such as stocks, stock options, currencies, and futures contracts, within the same day such that your positions are usually closed before the end of the day.

Day trading used to be the sole realm of professional investors. In fact, many day traders work for banks or investment firms. Advances in technology and the Internet, however, have allowed even amateur traders to day trading.

Day traders often borrow money to trade. This leveraging allows for a high potential rate of return and large profits. Some day traders earn millions of dollars a year. However, day trading can also be extremely risky. Without the proper skills and tools, day traders can just as easily and quickly lose money.

Although collectively called day trading, there are several different styles of day trading. Some trading styles include:

Momentum Trading

Momentum trading is a strategy in which one believes that stocks, or other financial instruments, move with a momentum or trend. Thus, stocks that have been rising are assumed to continue to rise. Likewise, stocks that are falling will continue to fall. A momentum trader thus buys stocks that are rising and short sells ones that are falling.

Contrarian Trading

Contrarian Trading sharply contrasts momentum trading. Contrarian traders believe that stocks that have been rising will reverse and fall. The contrarian trader buys stocks that have been falling and short sells stocks that have been rising.

Range Trading

Day traders who range trade look for stocks that have been consistently trading within a specific range. These stocks rise after hitting a "support" price and fall after hitting a "resistance" price. A range trader therefore buys stocks that are near the support price and short-sells stocks that are near the resistance price.

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Discover the Crucial Fact You Need Know!

Day Trading For Beginners - Discover the Crucial Fact You Need Know!

This article is all about forex day trading for beginners and what you need to know, to preserve your equity and win at forex trading...

The most important fact you need to know is that the odds are stacked against you and longer term, it's impossible to win. Have you seen a tempting day trading system with a track record of gains?

Then you will also find the warning below in the small print which is a sobering thought, showing you how the track record has been manufactured:

"CFTC RULE 4.41 - Hypothetical or simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown".

All day trading forex courses and systems sold that I have seen have it.

You see some lovely track records, then in the small print, you get the above which simply means the system has never been traded and the track record made up using past data. That's made up KNOWING the closing prices!

Well that's not hard, a child could do it and so could you.

So why doesn't day trading work?

All you need to do is think about the dumb logic it's based on.

We have numerous millions of people all around the world, all with different skill levels, motivations, aims and forex trading strategies and you are going to have to decide, what this vast mass of people are going to do, in just a few hours.

Is it possible?

Of course not.

It's a fact, that all daily volatility is of a random nature and prices can go outside of daily support, resistance, pivot points or any other technical analysis tool you apply.

Look at any forex chart and this is obvious.

Because you can't get the odds on your side, your destined to lose - PERIOD.

The other point you need to keep in mind (if the above is not enough to convince you) is that day trading breaks a fundamental rule of investment:

Run your profits, to cover your losses.

So in day trading, you do keep losses small (and your going to get lots of them) but on the other hand, what does a day trader do if he is lucky enough to have a profit?

Run it? Not a chance - he cuts it!

So you have lots of small losses and marginal wins (now and again when your lucky) and this equates to an equity wipe out long term.

Don't be fooled by all the vendors telling you that you will win, you won't.

You could always ask the obvious question:

If the system is so good, why hasn't it got a real time profitable track record?

You already know the reason why!

You can make money at forex trading big money but you need to get the odds on your side and you need to trade longer term.

If you want a good forex education and to learn currency trading the right way, forget day trading and try long term forex trend following.

Forex markets do trend longer term, you can get the odds on your side and you can win which is more than can be said for forex day trading.

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