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The Basics Of Day Trading

Aug 17, 2007
Even for professional traders, the concept of day trading is something talked about only in the best circles. Most investors won't touch on the concept of day trading with a ten foot pole. You should be warned against this practice and the risks of getting into it.

1. Huge Risks, Huge Rewards

Just what is it about day trading that makes people on edge? First of all, an explanation of day trading is required. Day trading is the process of rapidly buying and selilng stock through the entire day for the hopes of making a profit. Instead of waiting months or even years for stock prices to rise or fall due to the sucess or failure of companies, huge amounts of stock are moved with very little profit per share, but all those little amounts of profit add up. This is based on the fact that the market fluctuates every day. This means that there is huge risk when getting involved in day trading - you can't even begin to be a day trader without significant capital behind you. Futher, although there is the opportunity for great amounts of profit there is also the opportunity for huge losses.

2. What Makes A Good Stock?

The most important aspect of a stock for the purpose of day trading is liquidity - that is, how easy it is to sell. The stock in particular must have large numbers of buyers and sellers so that, at any time, you could give the order to sell all your shares. Otherwise, you might get left with a stock that won't sell and you lose everything.

3. What Qualities Do Day Traders Have?

Day traders are by nature extremely knowledgeable about the market. They will be able to predict small movements in the market price of stocks based on previous data and readily available information about the companies in question. Day traders will literally stare at a computer screen for twelve or more hours at a time looking for the slightest flux in the price, at a moments notice ready to give the order to sell.

4. Volume

In order to be able to be a day trader, you have to also look at the volume of stocks that are available for purchase. Investing in small companies is impossible as a day trader - you have to invest in huge companies where lots of stocks are available for purchase. In some cases, day traders will all agree to buy shares in a large company in the hopes that other people will jump on the bandwagon. Then they can all sell and make a profit.
About the Author
For more great day trading related articles and resources check out http://stockplace.info
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