Day trading is back. The amateur investor last seen in numbers at the time of the dotcom boom has made a return to the market trying to make money from today`s market volatility. Fancy having a go?
Day trading is the practice of buying and selling shares, or any other asset for that matter such as foreign exchange, within the same trading day. This means that day traders close out all their positions before market close.
Day traders may buy and sell many times within a trading day holding shares for a matter of minutes sometimes to make money from the volatility within the market. The number of trades you can make is pretty much unlimited as are the profits…and of course the losses.
The great advantage of day trading is that it`s easy to do. All you need is a computer and some money. It can be done from home and you work when you want to work. Sounds great.
Another great advantage of being a day trader is that if you get it right the returns can be far higher than money saved in a bank or if the money had been invested in equities through a fund manager. And all with a guaranteed adrenalin rush.
Day traders can take advantage of volatile movements in stock markets easier and more quickly than fund managers, are better able to invest in smaller companies and can liquidate their holdings to cash easier than larger investors.
But as always there are some downsides and anyone thinking of packing in their job to become a day trader ought to be aware of these.
Firstly this is not an easy way to make money. You can make a lot of money but you can also lose a lot and this is by far the biggest downside for anyone considering day trading. The trick is to agree a pot of money in advance that you can afford to lose and when it`s gone, give up.
Stay disciplined. It`s easy to get carried away and get greedy. Set stop loss rules and stick to them to manage the upside and downside risk. For example get out when a particular share rises or falls by 10%.Good day traders aim to make money little and often.
And remember this is a full time job. This means that income will be foregone and it is always worth remembering the stress and strain on family life arising from trying to make a living. It can become all consuming and take over your life.
So where to start? In the late 1990s technology stocks were all the rage for day traders fuelling the dotcom boom. Day traders make money from volatile stocks rather from no growth high yielding stocks. Technology, mining and oil stocks are better bets than banks, utilities, retailers and other so called blue chip stocks. No matter where you start build up knowledge in one, maybe 2 sectors and stick to what you know. In this way you will know how your sector will respond to events. This will help you develop your trading strategies.
And if you really are serious about trying to make it as a day trader, have a few practice runs first with dummy money. Most of the good online trading sites will allow you to set up dummy portfolios and do some practice trades before you have to commit real money.
Day trading offers the lure and seduction of easy riches but it is fraught with risks and dangers. It is not for the faint hearted but there are opportunities out there if a common sense and disciplined approach is applied.
And remember day traders do not just trade shares. For instance, the market in foreign exchange never closes, and has low transaction costs and easy access. (see http://www.traderhideout.com/easy-forex/review.html
Day trading in foreign exchange might be a better place to start. The principles are the same. Good luck.