Types of Traders

• There are two types of day traders. The first is traders who work for a investment firm and trade to increase the firm's profits. These traders have an advanced education and are given the most sophisticated tools available, plus the backing of large amounts of capital to help them succeed. Institutional day traders have very good salaries and can earn enormous bonuses if they trade successfully.
  
  The second type is self-employed day traders who work from home making trades over the Internet. They put their own money at risk to attempt to profit by day trading. Home day traders must obtain their own sources for strategies, techniques, money management, software and trading tools. Independent day traders may earn or lose money on any trading day. Losing trades are a part of day trading and a trader must be able to overcome the losses with enough winners to generate the profit he desires.
  
  

Trading Systems

• Day traders must develop a system of trading that fits their knowledge and personality. Traders use technical analysis to find patterns in stock prices and profit from the price momentum as a stock price continues to move up or down. There are several steps to learn a trading strategy.
  
  1. Learn stock technical analysis. Technical analysis is used by stock traders to find trading ranges and price breakouts of stocks, indexes and markets.
  
  2. Learn basic trading rules. Trading rules provide the discipline for a trader to limit losses and maximize profits. Buy several books on trading and build your own personal list of rules.
  
  3. Pick a screening method. Traders must find stocks with price movement patterns that can be successfully traded. Price screens are online or software tools traders use to find suitable stocks.
  
  4. Find an niche or edge. Successful traders have an area of knowledge or insight that allows them to trade. This is the great challenge of being a day trader: finding a pattern or patterns that can be successfully and repeatedly traded.
  
  5. Practice or paper trade before committing real money. There are online sources that will allow you to practice trading in real time to find and perfect your own strategies.
  
  

Understanding Risks

• Home day traders are competing against the smartest, most profitable people on Wall Street. Trading is mentally and physically stressful and can result in a significant loss of money. According to the Securities and Exchange Commission, "Day traders typically suffer severe financial losses in their first months of trading, and many never graduate to profit-making status." That said, it has been estimated that as many as 250,000 people practice full-time day trading from home. Day trading can allow you to control your financial future and income.