Introduction to Day Trading

Day trading is the practice of buying and thenamount in your account in order to borrow. Some
selling a stock all within a single day of marketfinancial institutions require that you have an
activity. Day traders dabble in a number ofaccount balance equal to 25% of the amount you
different financial instruments, such as stocks,are going to trade on margin, and some require
currencies, stock options, and futures contracts50% of the amount borrowed. And usually, the
such as interest rate futures, equity indextrader is required to exit a certain percentage of
futures, and commodities futures.the positions they have in various stocks by the
It is not uncommon for a day trader to executeclose of business on the day when the trades
hundreds of trades in a single day, whereaswere initially executed. Buying on margin is
others might only make a few trades. Some lookextremely risky, because the money you lose on
for swings in prices that may last a few secondstrades is still owed the lender. Margin orders are
or a few minutes. Such a trader literally will buy anot recommended for inexperienced investors.
stock and then sell it within a few minutes, orAnother popular trading strategy is called short
sometimes within 30 seconds or less. Others lookselling. This is where the trader borrows a stock
for changes in momentum and will hop in at thefrom a financial institution and then sells it, hoping
beginning of an upswing and then ride it out untilthat the price will go down in the near future so
the upswing is over. This is known as momentumthat the trader can buy the stock back at a
trading. Another strategy that day traders oftenlower price when it comes time to return the
employ is called position trading, where they lookstock to the lender. The difference between the
for a stock that is likely to experience a significantprice it was initially sold at and the cost to buy it
increase in price over a period of a few days orback in order to return it to the lender represents
even a few months. They hold their position untilthe profit for that trader. Short selling requires
the price plateaus, and then they dump it.advanced knowledge of market trends.
Most average day traders look at the resistanceAfter a stock is bought and subsequently sold,
and support levels for the price of a given stock.there is a settlement period that must elapse
When a stock has reached its historical maximum,before the money earned from the sale can be
it is said to have reached its normal resistanceused again to place another trade. The settlement
level, meaning it probably will not go up muchperiod is usually 3 full business days. This can be
more. When the stock has reached its historicalespecially frustrating for neophyte day traders
minimum, it is said to have reached its supportwho have opened up their first brokerage
level, meaning it will probably not go down muchaccount and then put all of their money into one
further. However, new resistance and supportstock, and then sell it the same day when it goes
levels are established all the time, so it is notup, only to discover that they have to wait until
always smart to rely on historical price levels tothe transaction is settled in 3 business days
gauge future price movements.before they can place another order. So, if you
Most traders look at websites like MarketWire forare new to trading, do not use all of your money
the latest breaking news developments to maketo place a single trade; set aside some money so
their investment decisions. If a company has justthat you always have some money in your
put out a favorable press release, the price of theaccount that is not tied up in settlement, so that
stock will likely go up in the short-term, so it isyou can continuously trade without interruption.
smart to buy some stock as soon as the story isI hope this information has helped you to become
released, and then sell it when the buying frenzyfamiliar with day trading. Try to set aside some
starts to lose its momentum.money for investing and start while you are still
One of the most common practices utilized byyoung. The earlier you begin, the more money
day traders is known as buying on margin. Whenyou can potentially make down the road. Some
you buy a stock on margin, you are basicallyday traders make millions, others lose everything,
borrowing money in order to buy stock, and ofso you should carefully research the companies
course the money that you borrow has to beyou are going to invest in beforehand and you will
paid back at a certain time. Most brokeragesdo fine.
usually require that you have a certain minimum