Is Day Trading For You? What IS it?

Every trader or student of trading that I know, at one point or other, thinks about doing some day trading.Some try it a few times and find that it’s not for them. Others make a more serious attempt to make a living from day trading.

Here are a few thoughts for your consideration.

Just what IS day trading?

One of the many decisions that a trader must make has to do with the time frame of the trade. Investors, take a big picture, long term horizon, by planning to be in a trade for months or even years. Long term traders, with a specific target goal in mind, might be in a trade for weeks or months. Swing traders plan of being in a trade for days or weeks. But the unique day trader WILL BE OUT OF THE TRADE BEFORE THE END OF THE TRADING DAY.

(Sometimes people think of day trading as meaning that the trader trades every day. This is NOT necessarily true. The term refers to the LENGTH of the trade, not to the FREQUENCY of trading.)

In short the DAY trader never is in a trade overNIGHT.

Say, for example, that you live in the central standard zone. The market opens at 8:30am and closes at 3pm. Any trades that you will place, starting at 8:30am or later, must be closed out and ‘put to bed’ THAT DAY, before the market closes at 3pm. That’s day trading.

Why is it so important to close it out that day?

Here are three reasons that successful day traders cite:

1. Peace of mind! “When the day is over, it’s OVER!” brag day traders. They love the fact that in day trading, you get your answer, about whether you were right or wrong in your prediction about the market, QUICKLY, often in a matter of minutes. It may not be the answer you want, as we shall see, in future editions of these posts, but at least you have the sense of finality in that you KNOW what the answer is and now, it’s 3pm and you can relax and enjoy your evening. There’ll be no loss of sleep wondering what the wild market has done with your precious positions overnite.

2. Margins can increase and knock out your trade. When you place a trade that has certain margin requirements, OK. You know what they are and you’re willing to place them. But, suppose you still have the position on at closing and, during the overnite session (if there IS one in the products that you’re trading) the margins are greatly increased, you can wake up to find that you’re trade has been kicked out!

3. Overnight worldwide events, often unpredictable and turbulent, can cause huge price fluctuations in futures markets, for example. Here again, you may wake up to great profits or great losses. It’s NOT a good position to be in, either financially or emotionally.

As we’ll see in future posts, there are several attractions of day trading that attract traders to move from swing or long term trading to this procedure. We’ll also see that some of those lures are AMORAL, i.e., they’re double-edged swords.