Day Trading - Quick Money
Day Trading - Quick Money
Day trading is a type of stock market trading in which the buying and selling of securities occurs within the same trading session. Typically, day traders possess a high level of knowledge about the stock market and have substantial capital. These traders use high leverage and short-term trading strategies to profit from small price movements in highly liquid stocks. Intraday traders perform two critical functions in the stock market: they maintain market "efficiency" (referring to the efficient market theory) through arbitrage and provide high liquidity to stock exchanges.
Controversial Aspects of Day Trading
The potential profit from day trading is perhaps one of the most discussed and controversial topics on Wall Street and in the trading community. Hundreds of online scammers capitalize on this hype, promising to generate returns of hundreds or thousands of percent for investors in a short time. Meanwhile, there is a substantial number of verified cases where day traders have earned significant capital in a short period. The truth lies somewhere in the middle. Some people engage in day trading without sufficient knowledge, while others deliberately enter the market for the thrill. Such traders are called gamblers. However, there are day traders for whom trading is a primary source of income and a path to a good life.
Many professional financiers and consultants steer clear of day trading, claiming that, in most cases, the reward does not justify the risk. They argue that there has yet to be a famous day trader, while Warren Buffett and Peter Lynch are icons of success achieved through more traditional investment methods. At the same time, those involved in day trading argue that profits are achievable, though they acknowledge that the odds of success decrease due to the complexity of trading and the elevated risks.
Overall, Wall Street is divided into two camps on the matter. However, everyone agrees on one thing: day trading is not for everyone and involves substantial risks. Additionally, this type of trading requires a deep understanding of market mechanics and short-term strategies.
Characteristics of a Day Trader
Day traders are often people who make a living through trading. For them, it’s not just a hobby. Typically, these traders are well-versed in the field and possess deep knowledge of the stock market.
- Knowledge and experience in the market: People who attempt day trading without understanding market fundamentals ultimately lose their money. To test their knowledge and try new trading strategies, one should open a demo account. This allows for gaining valuable insights and experience without losing savings.
- Sufficient capital: It’s impossible to rely on guaranteed earnings in day trading. Experienced traders use only risk capital that they can afford to lose. This capital management strategy not only helps preserve primary capital but also eliminates emotional trading. A significant amount of capital is required to profit from small price movements within a single day.
- Strategy: A trader needs an edge over other market participants—informational, technical, or statistical. There are several different strategies used by day traders, including swing trading, arbitrage, and news trading. These strategies are refined until they yield consistent profits and effectively limit losses. The features and drawbacks of each strategy can be learned in a free training course.
- Discipline: A profitable strategy is useless without self-discipline. Many traders end up losing capital because they fail to execute trades that meet their own criteria. As the saying goes, "Plan your trades and trade your plan." Success is impossible without discipline.
Day Trading Earnings
Day traders fall into two categories: those who work independently and those who work for large institutions (institutional traders). The majority belong to the latter group. They have access to resources that individual traders can only dream of: direct access to dealing desks, significantly more capital and leverage, expensive analytical software, and much more. These resources help them profit from less risky day trades before individual traders can react to them.
Independent traders manage other people's money or trade their own funds. Only a few have access to dealing desks. Such traders are heavily reliant on their brokers for brokerage services and leverage. However, their limited resources prevent them from competing with corporate traders. Instead, independent traders are forced to take greater risks and use different trading strategies. Independent day traders typically combine technical analysis and swing trading with leverage to profit from small price movements in highly liquid stocks.
Trading
Day trading requires access to some of the most advanced financial services and tools available in the market.
- Access to trading desks: This service is typically reserved for traders working for large firms or those with substantial capital. A dealing desk provides instant order execution, which can be very useful during rapid price movements. For example, when a merger is announced, day traders seek to profit from price arbitrage before most traders enter the market.
- Various news sources: In the film Wall Street, Gordon Gekko says that information is the most important commodity in trading. News allows most day traders to capitalize on opportunities. Therefore, it’s crucial to be among the first to know about all major events. A typical trading floor provides access to Dow Jones Newswire, multiple screens streaming CNBC and other news agencies, and software for constant analysis of various news sources.
- Analytical software: Trading software is an expensive necessity for most day traders. Those who rely on technical indicators or swing trading depend on software more than on news. This software typically includes numerous features, such as:
- Automatic pattern recognition: The trading program identifies technical indicators, including flags, channels, and even more complex models like Elliott waves.
- Genetic and neural applications: These programs use neural networks and genetic algorithms for advanced trading systems to predict future price movements more accurately.
- Brokerage integration: Some applications interact directly with brokers, allowing for instant and even automatic trade execution. This helps eliminate emotions in trading and improves execution timing.
- Backtesting: Testing historical data allows traders to see how a particular strategy would have performed in the past to predict its effectiveness in the future (though past results don’t always guarantee future success).
Combining these tools gives traders an edge over the rest of the market. Without them, many inexperienced traders lose their money.
Conclusion
Despite its controversial nature, day trading is widespread. Day traders play an essential role in maintaining market "efficiency" and liquidity. Some argue that people should stay away from day trading, while others claim it is one of the best ways to earn profits.