Day Traders

Day traders are those people who deal with shares on day to day basis with the sole objective of making some quick easy money. Day traders are those short term buyer who indulge in buying and selling of shares and stocks and keeping a close watch on the price fluctuations of the market.

The day traders generally close up the transactions at the end of the day so that their risks are minimized for the next day. Nobody knows how the market will open the next day and what will be the prevailing price of various securities. This a way of managing risks when the stock market shuts for the day. At times if there are great fluctuations they may even close the deal within minutes of buying the shares and thus making a quick profit. There are estimates that about 250,000 people operate from home.

However in spite of tall claims no one really knows whether the day traders finally make any money or not at the end of the day. Nobody really publicly announces his balance sheet at the end of the day and there is no available statistics regarding the number of day traders operating in the market.

Most studies have pointed you the fact that the day traders on the whole lose money in the stock market but there are stray instances of successful trading too. The percentage of day traders losing money is higher in cases of those who are new to it. Apart form this there are some firms where day traders lose money for unknown reason. Only a small number of firms make little money and a very small percentage of day traders actually make big money.

Statistics also point out to the fact that those day traders who operate from home tend to lose more money than those who operate through a professional stock broker’s firm. Making money by day trading has nothing to do with intelligence. No matter how much you study the trends and the various financial reports, it is purely a matter of luck in the end. There are so many unforeseen factors which influence the value of stock that no one can accurately predict its future swing.

Day Trading

Day trading is an integral part of the stock market. There are people or you may say traders who are always looking out for some quick easy money, and thus they indulge in day trading. It means buying and selling of shares for short terms or for short term gains. The trader buys shares not with an investment purpose but with a quick profit in mind.

The day traders keep buying and selling throughout the day and keep hoping that the value of the stock that they have purchased goes up. The value keeps fluctuating second to second and with it the fortunes of the traders also fluctuate. It is high risk dealing and only those who can afford to take such risks should go for it.

The day traders generally deal with borrowed money, they procure money on high interest with the hope that there profits will cover the interest burden, but the risk of suffering a loss is also equally high.

Day trading is neither illegal nor is it unethical. But it is not correct. A day trader must keep certain factors in mind before embarking on it. An investor must be mentally prepared to suffer huge risks and he should be financially capable of making good the losses should the need arise. They should only invest that much amount that they can afford to splurge or risk. They should not take out money from their basic expenses money.

Next factor they must keep in mind is that they are not investing money; it is not investment but a gamble. No one can predict how the stock market will turn so they must know how to book profits as soon as they can. They should not carry over the day trading stock overnight in the hope that the next day will bring better prices.

Day trading is not meant for the weak hearted. It is extremely stressful. It takes up your entire day and is like a full time job as you keep monitoring the stock prices. The day traders should not believe in other’s success stories and their claims of how they made some easy money. The day traders should not blindly follow any hot tips or leads from the agents but ask for proper recommendations before blindly following any tip as such.

Playing News

Playing news is what may be called a dirty trick in the stock market. The day traders indulge in it and it is their dominion.

We all know that the stock market is very sensitive to innumerable factors. It keeps fluctuating on any activity which is not even connected to it remotely. Two distant countries may not sign a treat and NASDAQ crashes! Such great is the unstable nature of the stock market! It is natural in such a scenario that there are always rumors floating regarding the performance, internal affairs of the companies, and government policies and so on by unscrupulous traders who take advantage of the ripples created by such rumors and make a quick profit.

The rumors may not match with what is apparent to the small trader but inspite of that. Sentiment plays a vital role and the trader falls for it. The price of the shares and the news regarding a share is directly connected. The price determines the nature of the news and the news affects the price of the shares, thus these two are interconnected.

The market and the industry analysis issue certain notifications which make and break many fortunes. The basic strategy followed by the day traders in most of the cases is buying stocks immediately after good news is announced and short selling immediately after a bad news is announced.

Many times the company plan on something important. For instance it mat decide on a major policy shift which is going to take place or a major financial decision is being taken which is going to affect the stock market greatly. The top level of the management knows the news but the public is not informed yet. The top level knows that the share prices will go up or fall down once the news is leaked. This is where they do some insider trading. They buy/sell according to news about to be made public and thus make a hefty profit. This type of playing news is illegal in the eyes of the law. At times the Market gets a whiff of the news and the market already starts moving in the anticipated direction. It is said that the news is already “priced in” and has already affected the stock price.

The day traders bank heavily on news playing aspect of the stock market and they buy and sell shares guided by these factors.

Scalping

Scalping is a trading style which small traders indulge into. It is a term used where the day trader or a small dealer may take small profits and close the deal. He is on the look out for small profits and as soon as makes them, he covers them. It is important that he doesn’t become greedy because if he happens to suffer a loss then it will wipe out all his small profits. The trader must have a strict exit rule for himself.

It is imperative that there are favorable factors conductive to scalping. The trader must have direst contact with his agent and must have continuous live information about the price fluctuations. He also must be having the time and the energy to keep investing in various spheres. Only if all these factors combine together, this strategy has chances of succeeding.

Scalping is based on a scientific theory. There are various types of scalping and the trader deals with his shares accordingly. It is assumed that at the beginning stages the stock will move in a particular direction. The initial movement of the stock can be predicted. Once the initial stage is covered, it movement becomes unpredictable. Thus the scalper should deal with he stock in the initial stages when it movement is predictable. He should not allow his small profits to vanish in the anticipation of future favorable movements of the stock at the later stage, when the market becomes volatile. This approach is directly opposite to the approach of “let your profits run” where the players simple sit tight and watch to optimize their profits in spite of the risks involved.

Hence scalping is a very profitable option for those who are looking for small gains and use scalping as a basic, primary strategy of making money or use it as a supplementary method of making money. The basic idea is to make small money which makes a big mound of gain in the end. The key factors are: little exposure to the market and small moves which the traders make. He may make as low as five gains or as many as hundred of small gains in a day. The time frame is very small. Hence he is always looking for a broker who is available readily.

Trend Following

Trend following is the strategy of the stock market in which investors use long term calculations and follow the market trend. They make careful note of various factors like upswing or down swing in the market. The traders follow the market trend and try to gain profits in both the trends, upwards and downwards.

There is a systematic approach behind it and they use the principles of channel breakups, moving averages, and prevalent market calculations. It is a diversified, long term and a reactive approach which is very systematic in nature. The traders are the followers of the trend. They don’t forecast or predict any trends; they just leap into the trend and make profits.

The volume of trading (i.e. the number of shares a trader can buy or sell) depends on how big an account he has. Whenever there is any difference in the price there is a rise or fall in the trading of shares. A negative movement of the price sees the exiting of the traders whereas a positive movement sees many new entrants. It has been noticed that a trend followers earning is always higher than those of a trader who goes against the tide, and also above his overall loss.

The trend followers do not enter the market in the initial stage, when there are small players in the market. They start dealing once the trend is established and there are risks involved of a change in the pattern of the trend. There are many misleading false swings in the market known as whipsaw trades which may mislead the trader following the trend blindly.

A trader should follow the trend in the market, what is really happening in the market and not what may happen in the market. No matter what the others may advice, it is safest to go with the trend. You must decide how much you want to trade. You should always aim at cutting your losses. Hence when there are great upheavals and swings in the market you should deal in smaller volumes and play it safe. There is no need of taking unnecessary risks.

All said, it is difficult to maintain emotional control and disciple and maintain one’s sanity through the various upheavals of the market. The traders must be prepared to face these market swings and take it in their stride and make adequate preparations.