What Is Day Trading? A Beginner's Guide
May 13, 2017
Day Trading is one of the most popular approaches. The reason is simple: it offers numerous advantages. It's no coincidence that it is adopted by many traders, regardless of whether they are more or less experienced. Obviously, it has a downside, so it presents some risks. Here, specifically, is what Day Trading is, and the pros and cons of this trading style.
Day Trading, a definition
Day Trading is, very simply, the approach that consists of opening and closing one or more positions within a day. From this definition, it might seem that Day Trading and Scalping are the same thing. This is not the case. In the second approach, in fact, the opening and closing is frenetic, and also occurs within a few minutes. Day Trading, while contemplating Scalping, generally provides for a "more relaxed" attitude.
Pros and cons of Day Trading
The first advantage of Day Trading stems from the fact that positions are not held overnight. The trader thus does not suffer the "Rollover effect". During the night, if we can say so, the market is subject to liquidity shifts that can profoundly change the value of assets and, indirectly, erode the profit produced by the trader or even worsen any losses.
The second advantage can be traced back to the fact that it is.... Adrenaline-pumping. While not reaching the levels of Scalping, it forces the trader to adopt an attitude based on concepts such as speed, interpretation skills, etc.
The biggest disadvantage, paradoxically, is precisely linked to this advantage. Day Trading is difficult to implement. Interpretation skills and intuition are necessary, as well as a considerable wealth of experience and knowledge. One must know how to read the market, distinguish between false signals and true signals. The problem is essentially this: within a day, if the time horizon is limited, the market provides a large number of signals, which can also be illusory and lead to losing trades.
A corollary of this disadvantage consists, then, in the need to pay extreme attention to the market and to place concentration at very high levels. If you want to earn, it is good to seize all favorable market movements, so you cannot let your guard down.
In light of the pros and cons, it is easy to understand how Day Trading is an approach reserved for experts. This does not mean that even novice traders cannot expand their knowledge and, following an adequate training period, try to succeed with Day Trading.
