Day Trading Skills - Techniques For Becoming A Proficient Trader
Despite the ominous caveats by the Securities and Exchange Commission cautioning investors against the controversial yet potentially profitable world of day trading, people attempt to try and acquire day trading skills, and a day trading stock tip is literally worth it's weight in either gold, or dross! The following is some information on learning trading techniques, the risk you may incur, and strategies for becoming a successful trader.
Just what is day trading and how do individuals learn day trading skill? Day trading is the process of rapidly buying and selling stock throughout the day in order profit from the minute changes in the market for that given day. Ideally, day trading strategies permit investors to secure profits from the tiny increases in the market.
Day traders observe a certain set of indicators when determining whether a stock is a candidate for day trading. First, the stock must have high liquidity. This means that the stock in question has many of buyers and sellers. The liquidity permits day traders to quickly acquire and then sell stock. Liquidity is based on the volume of transactions on the market, the number of outstanding shares, the total number of shareholders and the number of market makers. Many stocks on the NYSE and NASDAQ have a high degree of liquidity.
A day trader also watches volume individually, in addition to using it as standard for liquidity. To qualify for day trading, a stock needs to trade at least 500,000 shares a day. Stocks with 500,000 trades a day or more will allow the day trader to buy or sell a large amount of stock without greatly changing the price of the stock. Volatility is another criteria in evaluating a stock for day trading. The term refers to the actual or expected price movement of the stock. This movement is up or down over a period of time. Day traders look at the pattern and volatility of stocks over an individual day. Stocks that change price frequently over one trading day are ideal contenders for day trading. A fluctuation of at least $2.00 per day is recommended.
Finally, a day trader looks at the price transparency of stock. This term refers to the ability to amass information on the order flow of a stock. Also called market depth, price transparency helps the day trader calculate just how much money there is to be made on a certain stock. The NASDAQ II quote system offers data on all bids. Day traders who arrange to access the NASDAQ level II quote screens can assess the performance of a stock and determine its swing in price.
While these trading practices are totally legal and totally ethical, they are extremely risky. Day traders commonly buy on borrowed money with the hope that they will obtain higher profits through their acquisitions and sales. People who are determined to be "pattern day traders" by the NASDAQ and NYSE must have at least $25,000 in their accounts and can only trade in margin accounts. Margin accounts are brokerage accounts in which the broker lends the investor cash to purchase securities. If the value of the stock drops a great deal, the investor is required to deposit more cash to cover the margin or sell the stock. The SEC discourages day trading and acting on a day trading stock tip, and has taken many steps to inform people of the associated risks.
The first few months, a huge majority of day traders suffer massive financial losses and only a handful make it through to become profit-making day traders. For this reason, day traders should only invest cash that they can afford to lose. They should never invest money earmarked for the essentials like living expenses or second mortgages.
Bear in mind that day traders do not own stocks for longer than a few minutes at most. Stocks are never kept overnight because of extreme risks of prices changing to the detriment of the trader. Day traders do not invest, instead, they speculate on the movement in price of a stock throughout the day.
There are numerous websites whose sole purpose is to profit off those who look for a day trading stock tip. These websites assure quick results and offer hot tips to their members for a fee. The sources are generally paid to make these recommendations and must be avoided. Get the advice of a proven professional, and take plenty of time to use trading strategies for longer term success. Remember, there is no quick money, and day trading skill is often paid for with intolerable stress and cataclysmic losses.
Just what is day trading and how do individuals learn day trading skill? Day trading is the process of rapidly buying and selling stock throughout the day in order profit from the minute changes in the market for that given day. Ideally, day trading strategies permit investors to secure profits from the tiny increases in the market.
Day traders observe a certain set of indicators when determining whether a stock is a candidate for day trading. First, the stock must have high liquidity. This means that the stock in question has many of buyers and sellers. The liquidity permits day traders to quickly acquire and then sell stock. Liquidity is based on the volume of transactions on the market, the number of outstanding shares, the total number of shareholders and the number of market makers. Many stocks on the NYSE and NASDAQ have a high degree of liquidity.
A day trader also watches volume individually, in addition to using it as standard for liquidity. To qualify for day trading, a stock needs to trade at least 500,000 shares a day. Stocks with 500,000 trades a day or more will allow the day trader to buy or sell a large amount of stock without greatly changing the price of the stock. Volatility is another criteria in evaluating a stock for day trading. The term refers to the actual or expected price movement of the stock. This movement is up or down over a period of time. Day traders look at the pattern and volatility of stocks over an individual day. Stocks that change price frequently over one trading day are ideal contenders for day trading. A fluctuation of at least $2.00 per day is recommended.
Finally, a day trader looks at the price transparency of stock. This term refers to the ability to amass information on the order flow of a stock. Also called market depth, price transparency helps the day trader calculate just how much money there is to be made on a certain stock. The NASDAQ II quote system offers data on all bids. Day traders who arrange to access the NASDAQ level II quote screens can assess the performance of a stock and determine its swing in price.
While these trading practices are totally legal and totally ethical, they are extremely risky. Day traders commonly buy on borrowed money with the hope that they will obtain higher profits through their acquisitions and sales. People who are determined to be "pattern day traders" by the NASDAQ and NYSE must have at least $25,000 in their accounts and can only trade in margin accounts. Margin accounts are brokerage accounts in which the broker lends the investor cash to purchase securities. If the value of the stock drops a great deal, the investor is required to deposit more cash to cover the margin or sell the stock. The SEC discourages day trading and acting on a day trading stock tip, and has taken many steps to inform people of the associated risks.
The first few months, a huge majority of day traders suffer massive financial losses and only a handful make it through to become profit-making day traders. For this reason, day traders should only invest cash that they can afford to lose. They should never invest money earmarked for the essentials like living expenses or second mortgages.
Bear in mind that day traders do not own stocks for longer than a few minutes at most. Stocks are never kept overnight because of extreme risks of prices changing to the detriment of the trader. Day traders do not invest, instead, they speculate on the movement in price of a stock throughout the day.
There are numerous websites whose sole purpose is to profit off those who look for a day trading stock tip. These websites assure quick results and offer hot tips to their members for a fee. The sources are generally paid to make these recommendations and must be avoided. Get the advice of a proven professional, and take plenty of time to use trading strategies for longer term success. Remember, there is no quick money, and day trading skill is often paid for with intolerable stress and cataclysmic losses.
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