What Is a Day Trader?

A day trader is a type of trader who executes a relatively large volume of short and long trades to capitalize on intraday market price action. The goal is to profit from very short-term price movements. Day traders can also use leverage to amp﷽lify returns, which can also amplify losses.

While many strategies are employed by day traders, the price action sought after is a result of temporary 澳洲幸运5官方开奖结果体彩网:supply and demand ineffiওciencies caused due to purchases and sales of the asset. Typically positions are held from periods of milliseconds to hours and are generally clos🍬ed out before the end of the day so that no risk is held after hours or overnight.

Understanding Day Traders

There is no special qualification required to 澳洲幸运5官方开奖结果体彩网:become a day trader. Instead, day traders are classified based on the frequency of their trading. The 澳🔯洲幸运5官方开奖结果体彩网:Financial Indus🐠try Regulatory Authority (FINRA) and U.S. Securities and Exchange Commission classify day traders based on whether they trade four or more times during a five-day span, provided the number of day trades is more than 6% of the customer's total trading activity during that period or the brokerage/investment firm where they have opened an account considers them a day trader.

A day trader often closes all trades before the end of the trading day, so as not to hold 澳洲幸运5官方开奖结果体彩网:open positions overnight. A day trader's effectiveness may be limited by the 澳洲幸运5官方开奖结果体彩网:bid-ask spread, trading commissions, as well as e𒊎xpenses for real-time news feeds and analytics software. Successful day trading requires extensive knowledge and experience. Day traders employ a variety of methods to make trading decisions. Some tradᩚᩚᩚᩚᩚᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ𒀱ᩚᩚᩚers employ computer trading models that use technical analysis to calculate favorable probabilities, while some trade on their instinct.

A day trader is primarily concerned with the price action characteristics of a stock. This is unlike investors, who use 澳洲幸运5官方开奖结果体彩网:fundamental data to analyze the lo🦩ng-term growth potential of a company to decide whether to buy, sell or hold its stock.

Price volatility and average day range are critical to a day trader. A security must have sufficient price movement for a day trader to achieve a profit. Volume and liquidity are also crucial because enterಞing and exiting trades quickly is vital to capturing small profits per trade. Securities with a small daily range or light daily volume would not be of interest to a day trader.

Pattern Day Trader Designation

A 澳洲幸运5官方开奖结果体彩网:pattern day trader (PDT) is a regulatory designation for those traders or investors that execute four or more day trades over the span of five business days using a 澳洲幸运5官方开奖结果体彩网:margin account.

The number of day trades must constitute more than 6% of the margin account's total trade activity during that five-day window. If this occurs, the trader's account will be flagged as a PDT by their broker. The PDT designation places c🍰ertain restrictions on further trading; this designation is put in place to discourage investors from trading excessivel🃏y.

Day Trader Techniques

Day traders are attuned to events that cause short-term market moves. Trading the news is a popular technique. Scheduled announcements such as economic statistics, corporate earnings, or 澳洲幸运5官方开奖结果体彩网:interest rates are subject to market expectations and 澳洲幸运5官方开奖结果体彩网:market psychology. Markets react when thos🌌e expectations are not met or are exceeded, usually with sudden, significant moves, which can bene🐻fit day traders.

Another trading method is known as fading the gap at the open. When the opening price shows a gap from the previous day’s close, taking a position in the opposite direction of the gap is know♉n as fading the gap. For days when there is no news or there are no gap🌺s, early in the morning, day traders will take a view on the general direction of the market.

If they expect the market to move up, they would buy securities that exhibit strength when their prices dip. If the market is trending down, they would short securities that exhibit weakness when their prices🐲 bounce.

Most independent day traders have short days, working two to five hours per d🅷ay. Often they will practice making simulated trades for several months before beginning to make live trades. They track their successes and failures versus the market, aiming to learn by experience.

Day Trader Strategies

Day trader🎶s use several intrada🍌y strategies. These may include:

• 澳洲幸运5官方开奖结果体彩网:Scalping: this strategy attempts to make numerous small profits on small price changes throughout the day, and may also include identifying short-lived 澳洲幸运5官方开奖结果体彩网:arbitrage opportunities.
• 澳洲幸运5官方开奖结果体彩网:Range trading: this strategy primarily uses support and resistance levels to determine buy and sell decisions. This trading style may also go by the name 澳洲幸运5官方开奖结果体彩网:swing trading if positions are held for weeks rather than hours or days.
• 澳洲幸运5官方开奖结果体彩网:News-based trading: this strategy typically seizes trading opportunities from the heightened volatility around news events and headlines.
• 澳洲幸运5官方开奖结果体彩网:High-frequency trading (HFT): these strategies use sophisticated 澳洲幸运5官方开奖结果体彩网:algorithms to exploit small or short-term market inefficiencies up to several thousand times in a single day.

Advantages and Disadvantages of Day Trading

No Overnight Moves

The most significant benefit of day trading is that positions are not affected෴ by the possibility of negative overnight news that has the potential to impact the price of securities materially. Such news inclu♏des vital economic and earnings reports, as well as broker upgrades and downgrades that occur either before the market opens or after the market closes.

Higher Margins and Easier Exits

Another advantage is the ability to use tight 澳洲幸运5官方开奖结果体彩网:stop-loss orders—the act of raising a stop price to minimize losses from a 澳洲幸运5官方开奖结果体彩网:long position. Another includes the increased access to margin—and 🔯hence, greater leverage. Daᩚᩚᩚᩚᩚᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ𒀱ᩚᩚᩚy trading also provides traders with more learning opportunities. 

Higher Costs

Intradꦿay traders may have insufficient time for a position to see a profit. There are also increased commission costs due to trading more frequently, which eats away at the profit mar🤪gins a trader can expect.

Higher Risks

Day traders that engage in 澳洲幸运5官方开奖结果体彩网:short selling or use margin to leverage long positions can see losses amplify quickly, leading to 澳洲幸运5官方开奖结果体彩网:margin calls.

Example of Day Trading

Zack is a day trader who uses 澳洲幸运5官方开奖结果体彩网:technical analysis to make trades with his brokerage account. By analyzing price trends over a single day, he is able to predict short-term movements to score a small prof🐻it several times per day.

During a typical trading day, Zack will watch metrics such as the Relative Strength Index and the 澳洲幸运5官方开奖结果体彩网:Intraday Momentum Index to evaluate whether a particular stock is 澳洲幸运5官方开奖结果体彩网:oversold or undersold. 🐠He may also use margin trading to increase his profit𒁃s. He may also use stop-loss orders to exit positions quickly if the market turns against him.

If Zack is a successful day trader, then he expects to have more profitable trades than losing ones over the course of the day. However, one bad trade could wipe out his margin position. Due to this risk, day trading is sometimes compared to "picking up pennies in front of a steamroller."

Day Trading vs. Other Types of Trading

Day trading is one of several strategies for professional stock traders. Unlike other ꦡtraders, they look for predictable price patterns and small corrections over the course of a single trading day. Although the profits are relatively small, they can accumulate over a long-enough time frame. Day traders typically close out their positions at the end of the trading day, reducing their exposure to swings in the overseas markets.

In contrast, 澳洲幸运5官方开奖结果体彩网:swing traders try to anticipate the peaks and troughs of a stock's price movements over a longer time frame, of🅷ten weeks or months. With the right strategy, swing traders can earn higher profits than intraday traders, but they have to spend more time looking for suitable stocks.ꦡ

Similar to swing traders, 澳洲幸运5官方开奖结果体彩网:trend traders examine a stock's momentum and moving averages to determine🥂 whether a stock is likely to move higher or lowꦛer. They then buy stocks with a strong upside, or short those likely to trend lower. Trend traders are likely to look for chart patterns or technical indicators in their forecasts.

How to Become a Day Trader

Becoming a successful 🍬day trader requires a great deal of personal discipline. Novice day traders should expect to lose money as they learn the ins and outs of the market and be psychologically prepared for further losses over the course of their careers.

Day trading also involves a great deal of research, not only into the fees and commissions on their trades but also the relevant taxes and regulations. For example, day traders should be cognizant of the 澳洲幸运5官方开奖结果体彩网:wash sale rule, which prohibits repeated transactions of the same security within a 30-day period. They should also fully understand the risks, especially of trading on 𝐆margin.

The Bottom Line

Day traders look for extremely short-term price changes in the stock or forex market, ♏allowing them to accumulate profits over the course of a trading day. Although it can be profitable, it also comes with a high degree of risk—especially for traders on margin positions. In addition to a thorough understanding of the stock market, day traders must also exercise self-control and avoid impulsive mistakes.