Day Trader is a practice to be able to buy and sell stocks in a short time with a period of time per day. By becoming a day trader, the profits obtained can be very large if collected. To find out more about Day Trader, you can read the article below. Also make sure to follow our social media accounts so you can understand other trading terms!
What is a Day Trader?
Day trading is the practice of buying and selling stocks over a short period of time, usually a day. The goal is to make a small profit on each trade and then compound those profits over time. With the advent of online stockbrokers like Robinhood and low-cost or free trading, day trading has become a viable (albeit risky) way for retail investors to turn a few quick wins into big money. “Successful day traders treat it like a full-time job, not just a few hasty trades made between business meetings or over lunch.” However, in practice, retail investors have a hard time making money through day trading. A 2010 study by Brad Barber at the University of California, Davis, found that only 1% of day traders consistently make money. The study looked at trading over a 14-year period, from 1992 to 2006. The very small number who made money consistently devoted their days to the practice, and it became a full-time job, not just a few hasty trades made between business meetings or over lunch. If all of this sounds like a bit more risk than you’re willing to take, you can do what many investors do: get involved in long-term investing, buying and holding a well-diversified portfolio that includes low-cost index funds and ETFs. Make regular investments into the account and let the power of growing your portfolio drive long-term gains. (Read more about other stock trading strategies .) It’s not as exciting as Day Trading, but it’s far more likely to grow your wealth over the long term. However, if Day Trading is something you must try, learn as much as you can about its purpose first.
Day Trader Goals
The goal of a Day Trader is to profit from the price action of the underlying financial instrument in the shortest possible time. This is often achieved by the use of margin. The use of leverage can magnify profits from relatively small price movements. However, leverage cuts both ways as losses can also magnify rapidly. The first goal of a Day Trader is capital preservation and strategy development and execution consistency.
Characteristics of Day Traders
Day trading is a great career choice — for the right person in the right situation. Becoming a successful day trader requires certain personality traits like discipline and determination, as well as a financial cushion and personal support system to help you through the tough times. Think you have what it takes to go into business for yourself as a day trader? See how many of these characteristics apply to you:
- Discipline: Day traders maintain strict discipline about how they approach their trading day and what they do during market hours.
- Independence. Most day traders work from home, alone. If being in charge of your own business and your own trading account sounds appealing, then Day Trading may be a good career choice for you.
- Quick wit. Day Trader is a game of minutes, so day traders should not be deliberative or panic. Traders should act quickly when they see a buy or sell opportunity.
- Decisiveness. Can you make decisions and follow through? Can you quickly assimilate information into a sound strategy? If you mess up, do you know what you did wrong? If so, you have the basic personality traits of a good day trader.
- Persistence. Good day traders are persistent. Once they find a strategy they believe in, they stick with it.
- Tech enthusiast. If you like to tinker with programs, don't mind taking care of your computer, and understand how to manage your hardware's efficiency, you're in good shape for Day Trader.
- Interest in the markets. If you watch the business news for fun and have been following the securities business for years, you may be a good candidate for Day Trading. An understanding of the cycles and systems that drive security prices will give you a foundation on which to build.
- Investing experience. If you have invested in the past, you will know some of the language and market limitations. And that will give you a foundation to work from.
- Knowledge of trading systems. It takes a long time to find a strategy that works well enough to make it worth your time. If you have taken the time to create and test a good strategy, then you are ready to go.
- Afford to lose money. You should never day trade with money you need to live on. Make sure you have enough money set aside to cover your living expenses when you start out. And keep a second pot of money, your walk-away fund, so you are free to walk away from day trading and move on to the next adventure if you decide it’s not for you.
- Have a strong support system. Trading is stressful. The markets churn with news events that no one can predict. Good day traders are psychologically strong. They have people and activities in their lives that help their brains take a break from trading, from a regular exercise routine to good friends to hobbies.
Advantages and Disadvantages of Day Traders
Here are the advantages and disadvantages of Day Trader. You can see the advantages and disadvantages below.
Day Trader Advantages
Following are the significant advantages of Intraday Trading:
1. Let Leverage Work For You
Leverage in the stock market is very similar to a bank loan. Intraday traders often use leverage to increase their profits. The bank evaluates your financial profile and approves the loan amount. Similarly, in the stock market, a broker evaluates your stock holding record and cash availability status to approve the margin amount. The margin can be anywhere between five times and ten times the cash available in your trading account. So, if your broker gives you a ten times margin, you can buy INR 1 lakh worth of stocks with an investment of INR 10,000.
2. Minimize Overnight Risk
Stock prices move for a number of reasons, including a company’s financial results, business prospects, industry status, and many macroeconomic factors. Also, if there is any negative geopolitical or environmental news that comes out after the market closes, the market may still be in the red the next day. However, intraday traders rarely bother with such things, because whatever they do, they do it within the day. After the market closes, they can forget about their worries and stay calm. In fact, no negative news can affect their sanity and money after the market closes.
3. Sell First Buy Later
Typically, position traders buy stocks first and sell later. However, intraday trading allows you to sell stocks first and buy them later. Therefore, you can also trade and profit efficiently in a bear market. Although futures and options also allow you to profit through short-selling, the capital requirements are often higher than intraday trading. Therefore, if you want to implement a ‘sell first buy later’ strategy to profit, intraday trading may be your best bet.
Disadvantages of Day Traders
Here are the Top 3 Disadvantages of Intraday Trading:
1. High-Risk High-Reward
While most traders accept that intraday trading is one of the most profitable forms of trading, they do not ignore that it is also the riskiest. An intraday trader requires keen observation skills and must understand the market properly. While it is difficult to establish yourself as an intraday trader, it becomes easy once you understand the rules. Intraday traders generally follow two techniques - price action and technical indicators. Price action traders draw support and resistance lines on the charts to identify entry and exit points. On the contrary, technical traders rely on technical indicators, such as RSI, MACD, DMA, SMA, and the like, to find trading opportunities. Hence, proper research is essential to minimize the risks of intraday trading.
2. Time Intensive Intraday Trading
is a complex art. And, unlike position or long-term trading, you can’t leave your computer or mobile app before closing a trade. While you can set targets and stop losses and go back to your full-time job, this is not a viable model in the long run. Sometimes, a stock may hit the stop loss before it finally hits the target. Or it may come back a stone’s throw from the target price and hit the stop loss. Staying glued to the price action can help you avoid such problems and trade like a pro.
3. Extreme Volatility Can Make You Nervous
You may find stocks moving wildly on the 1-minute, 3-minute, or 5-minute charts. However, when you look at the 30-minute or daily charts, the movements will look more streamlined and predictable. Therefore, staying away from intraday trading may be a wise decision if you don’t like volatility.
How to Become a Day Trader
These tips can help day traders of all types, both experienced and new to the market. Perhaps the most important skill to have as a day trader is the right temperament. Successful day traders are level-headed, able to follow the rules even when money is on the line and good at spotting patterns, Arora says. Day traders also require a lot of discipline, Kepler adds, and even those with a good education can find themselves overtrading rather than quitting while they’re ahead. If you feel like you have what it takes, then you’ll want to educate yourself. There are plenty of free trading resources online, not to mention books in the library, so do your homework if you’re thinking about paying for a trading course. Once you feel like you have the basics down, Arora recommends starting with short-term trades where you hold positions for a week or maybe a few months. Combine more forgiving time frames with smaller amounts of money. If you’re successful, try gradually shortening the time frame until you’re opening and closing trades on the same day. Once you’re established as a true day trader, you’ll spend your time looking for promising technical patterns and stocks that are moving a lot, either up or down. You can scan the headlines to see what’s moving the market or individual stocks. Since you’re probably looking at news and technical charts for multiple stocks, indexes and other trades, you’ll probably want to have a home office with multiple computer screens, not to mention reliable high-speed internet. Ultimately, though, remember that day trading is extremely risky, doesn’t work for most people in the long run and is probably best considered a hobby for those who are already wealthy. “Too often investors watch the financial news networks 24/7 and have a bias toward action – namely, trading,” Johnson says. “Investment success is more easily achieved by making fewer decisions and practicing buy-and-hold investing. Now that you know what a day trader is, what his goals are, what his strengths and weaknesses are, and how to become a day trader, you can start becoming a day trader by implementing the methods above. Also, please register to be able to trade with GIC and make yourself a day trader!
Last: 
