The Internet has had a huge impact on the way business is conducted, not only locally but on a global scale. Money and information are exchanged almost instantaneously. Because of this, "Day Trading" has evolved from something only bankers and institutional traders knew about to something that many average people know about, but can also take part in. What few beginners fail to realize is that day trading is very stressful and is a highly risky form of trading where stocks or commodities are bought and then sold within the day (hopefully at a profit). If it is done properly, huge fortunes can be amassed and a comfortable lifestyle can be achieved, but few can do it properly. The reason for this is because few average people devote the time and effort to get the correct financial advice or develop a bit of foresight.
In the beginning …
Prior to the 1990's and the rise of computers and the internet, the time taken to buy and sell stocks was generally a lot longer. It was common for someone to buy the stock of the company but not have to actually pay for it for nearly two weeks. A lot of investors would try to sell the stock for more than they "paid" for it before they actually had to pay with actual money. In effect, they weren't even using their own money (if they even had any!), And they were only collecting the profits. Although many made their living this way, it was extremely dangerous to do. One wrong trade could lead to the investor owing thousands!
Today, because the banking system is highly computerized, money can be instantly drawn out of accounts to purchase shares.
Day Trading Strategies
A day trader can employ a few analysis techniques to get a good idea of what can happen and position him / herself to take advantage of the situation. Although success is not guaranteed, it decreases the chances of making a losing trade.
The first technique is to follow the trend of the stock or commodity. This is a very old technique and has been done pretty much since the start of the stock market. Most successful traders and investors will use this technique quite successfully. It simply involves looking at the trend and trading accordingly. If a stock has been trending upwards, there's a good chance that it will continue doing so. However, this isn't always the case, and you should never base all your daytrading decisions on the current trend.
Another technique day traders use is what is called "range trading". This is a technique where a trader will either buy or sell a stock when it has reached it's respective high or low. The philosophy behind this is that a stock will trend upwards until it reaches a new high and then retreat in price. On the opposite side, day traders also feel that a stock will only drop in price until it reaches a new low then rebound back. It is at this new low that day traders will start to buy.
All of the above techniques involve looking at price charts and making decisions on that. That sort of analysis is termed technical analysis and it is based on the assumption that what has happened in the past will happen in the future. While this is often the case, it shouldn't be the only way to analyze a stock. One last technique that day traders use is referred to as fundamental analysis, and this is when you trade based on what is happening in the news. For example, if a company releases news that their company has posted record profits, there is a good chance the share price will go up. A day trader will look for these news reports and trade accordingly, but he / she needs to be very quick! This is why trading using computers is very helpful, as the trader can get up to the minute information!
While none of these techniques provide a guarantee of success if used by itself, a combination of the above techniques can provide the day trader an edge if he / she is quick. However, while the profits may come quickly with day trading, one must be aware that the losses can come just as fast, and in most cases even faster with more devastating results. If you are planning on becoming a day trader, do as much research and practice before you put down any of your own money!