Day Trader

A day trader is an individual who specializes in trades which capitalize on intraday price movements in the market.

Rather then focusing on the long-term potential of a stock, day traders will solely concentrate on its price action characteristics.

The term derives from all activities being done during a single trading session and all positions being closed before the end of the day. As such, the day trader will never hold his positions overnight.

Leverage is commonly used by day traders as means of enhancing their returns. A day trading strategy is rigorous and requires a significant amount of technical analysis to support it as positions may even be held for only a matter of seconds.

Many day traders simulate their trades for a long period of time before actually committing to live trading.

By doing so, they can successfully track their performance and learn up to the point in which they feel ready to go live.

Their techniques can vary but the most common ones are scalping (very small profits on very small movements), high-frequency trading (trading by using algorithms to exploit market inefficiencies), range trading (trading based on support and resistance levels), and news-based trading (capitalizing on high volatility and market sentiment).

Pros of Day Trading

Since positions are closed before the end of the trading day, day traders are risk free during the market’s off-hours. Day traders will also have access to increased leverage.

Cons of Day Trading

A common yet significant risk in day trading is simply the lack of time to profit.

Day trading also comes with the disadvantage of increased commissions which chip away some of the gains.

The greater risk day traders face is, for the ones who use margin, to be margin called. This, in turn, means that they must meet both their capital and margin maintenance requirements.