Day trading is the art of making short-term trades that allows you to take advantage of the stock market’s liquidity. It is also known as ‘active trading’ because you will initiate trades one or multiple times in a day. Even though this isn’t something new, a lot of people still believe a lot of misconceptions about this value investing.
Two prevalent notions about this is that day trading can make you rich quick (which is not true) and it is also impossible to do without a lot of risks. Although there is a possibility for you to get rich, it is not a get rich real quick scheme. Also, it is not impossible to do; you just have to know how to do it.
So, to quash the misconceptions surrounding this topic, I am going to talk about the most important things that you need to know about day trading.
1. It Requires Time
Time is of the essence to a day trader. The act of trading multiple times a day would mean that this can either be a part-time or a full-time job. In fact, the more seasoned day traders work when the stock market opens up until its closing time.
The problem with most day traders, especially the novices, is that they do not try their hand on a demo account. They risk real money and they lose a lot because they thought that the can win big from the get-go.
Day trading is not like any form of trading. Since it takes advantage of the market’s liquidity, a day trader should always look at the entire market for possible trades. The best thing you can do is try a demo account or an online program that provides you with real and updated data.
This is so that you can get a hang of it before you put it real money. This is also to let you know if this type of trading is for you or not.
2. The Different Styles
There are actually multiple day trading styles out there. They are:
a) Scalpers- these are the very definition of active traders. They are the ones who catch even the smallest price movements, albeit doing it with a large position size.
b) Non-Scalpers- unlike the scalpers, these people are still quite active, but they only get the ones with a much bigger price movement.
c) Level II- these are the more careful ones and they really take their time to look at the price charts to see where the most shares are headed.
3. There is a Minimum Required Deposit
If you’re an active trader, you need to have at least $25,000 in your trading account before you can actually earn a lot of profit. In fact, seasoned day traders would tell you to up it to $30,000 to really get ahead of the game.
4. Popular Trades
For the most part, you would want to trade either in the stock market or Forex. The stock market involves buying or selling shares while the Forex is concerned on buying and selling currencies.
The main difference would be, at least for day traders, is the minimum required initial deposit. For purchasing stocks, you need to have at least $25,000 in your trading account. For Forex, you only need to start with a measly $500.