Day Trading

Only an estimated 10% of all day traders are able to make profit out of trading, and that is being generous! Active traders tend to underperform the market by 6.5% annually. The statistics are not looking great for day traders! What is day trading and why do people do it? In this article day trading will be explained, along with some reversal patterns and strategies.

what is day trading computers explained

What is day trading?
Who is day trading for?
Become a profitable trader!
When to open a trade?

What is day trading?

Day trading means buying and selling any financial instrument on the same day. Typically, day traders are well funded and educated and they use price movements in volatile markets to gain profits. When day traders stick to their plan it is possible to make a lot of profit in a few hours. See the example below:

Day trading chart Facebook

For example: The trader buys 200 shares of Facebook at $172.73 and sell them a little more than an hour later at $174.76 which means they’ve gained $406 profit (- the fees for buying these shares) in a short timeframe.

Who is day trading for?

Extra profit in a couple hours sounds great to everyone, but like stated before: only an estimated 10% of day traders are able to make profit (and that’s being generous).

Those are people who took their time to come up with a trading plan and have the discipline to stick to their strategies.

So, day trading is for people who:

  • Can deal with losses
  • Have a trading strategy
  • Have the discipline to stick to their strategy
  • Are patient, they don’t overtrade

So is it possible to become part of the 1% profitable traders?

Yes, it is. 2 important to remember when doing so are:

Don’t make trades become you want to. Trade when the market allows you to (stick to your plan). When starting out, don’t feel like you have to trade everyday, just because it’s called day-trading.

Set a low target and try to make a set amount of profit per trade and raise it from there. If you’re able to make a steady profit, then you’ll be able to make more profit once you’re able to increase the size of your trades.

It’s important to keep your profit target more over 50% of your maximum loss-”target”. If you aim for $120 profit, your maximum loss should not exceed $80.

If your profits per winning trade are over 50% higher than the losses on your losing trades, and you win 50% of your trades, you’ll make a profit day-trading.

So how do I determine when to Open a trade?

The definition of technical analysis according to investopedia is:

Technical analysis is a trading discipline employed to evaluate securities and identify trading opportunities by analyzing statistics gathered from trading activity, such as price movement and volume. Unlike fundamental analysts, who attempt to evaluate a security’s intrinsic value, technical analysts focus on charts of price movement and various analytical tools to evaluate a security’s strength or weakness.
Investopedia.com

There are a lot of different “analytical tools” like stated in the quote, such as moving averages, trend lines, chart patterns and support and resistance levels. Read trading strategies and indicators for more information regarding those tools.

Not sure about your trading skills yet?

Maybe copy trading or automated trading is more for you! Read Copy Trading or Automated trading and find out!