Stock Market Day Trading

Stock market day trading is a strategy that tries to take advantage of the price swings that occur during a single day. Sometimes referred to as “intra-day” trading, the basic idea is that most stocks will fluctuate during the trading day, even if they start and end near the same price.

By buying into the particular issue when it’s in a “lull” and then dumping it as it swings back up, the day trader is able to make a small profit. Stock market day trading is best used and most effective as a strategy for investors that have both a large amount of cash, and the maximum leverage in buying stocks.

Day trading isn’t limited just to stocks. In fact, the largest trading market on the planet is the Forex, or Foreign Currency Exchange market. Similar to stock day trading, Forex investors look to take advantage of small swings in the values of foreign currency pairs. Forex is a trillion-dollar global marketplace.

Stock market day traders generally have more direct access than a typical investor. Called “level 2?, these investors have direct online access to various stock, bond, currency, and commodity exchanges. This allows for very rapid execution of trades, something very necessary if you want to take advantage of these intra-day swings.

Level 2 trading used to be reserved to the big brokers and investment houses. Today however, nearly any investor can sign up with a a discount broker such as e-Trade, Charles Schwab, or dozens of other companies, and have level 2 access right from their home computer. While this allows anyone to engage in speculative stock day trading, it also makes it equally easy for the less-sophisticated investor to rack up heavy losses quickly if they don’t know what they are doing.

The main attraction of day trading is quick profits. However the same thing that makes it so attractive also makes it potentially very risky. One option is the use of various software programs that will do automated analysis of various factors and indicators, and create recommendations based on very complex formulas.

Most of these programs engage in what’s called “technical analysis” – the idea that price fluctuations tend to occur in patterns. These patterns can often be recognized, allowing the savvy investor to “buy low and sell high” without necessarily knowing anything about the particular stock, bond, or futures, while still profiting from these swings.

Day trading can be very seductive, particularly because it can be both lucrative, and fast. With a large enough account on margin, it’s possible to make huge profits from very slight movements. Unfortunately, this price pendulum usually swings both ways, and it is just as easy to lose money as it is to make money.

While stock market day trading counts it’s wins and losses in the space of a single day, it’s really a longer-term investing strategy. Most successful day traders lose money on many days; the difference is that they have more winners than losers over the long haul. The best piece of advice is never invest anything you can not afford to lose!