Day traders are people who buy and sell stocks of various companies all day long. There are mainly two types of day traders – scalpers and momentum traders, Scalpers buys and sells very quickly whereas momentum traders buy stock that is moving up or down during the day.
The main objective of day trader is to maximize profit with minimum risk. As an active day trader, I am sharing with you the benefits of earning within a single market day – and the potential challenges with day trading.
You perhaps warned by your friends, relatives or stock market consultants that day trading is risky. However, from my personal experience, I found it is no more risky than long-term investment in volatile stock or futures.
I would rather say investment in equity is always risky because of erratic and sometimes unpredictable nature of market forces. On the contrary, investments in banks allow money to grow at a small rate, while that rate is guaranteed, and the local government generally protects the money. However, you need to invest some portion of your capital in capital market for wealth building.
Let us examine why short term and long-term investment pose the same risk in terms of capital loss. We will consider a hypothetical scenario to explain the point.
Let’s assume you are a value investor and invested in a company A. On 25 th July’07, company A is opened at $27 in the morning, and then plummets to $24 within a few hours due to a large class action lawsuit being filed against them. If the company A goes to bankrupt because of said lawsuit, share of company A will fall drastically. In this situation, all kinds of share market investors will loose their capital because the stock is worthless now.
Even in the above case, day trader might protect their capital well because they are normally very cautious and open to all kinds of market news. Day trader mainly works based on market intelligence.
To be successful as day trader, you need to do many practices and most important you need to learn from your mistakes. You need to work with an experienced day trader, need to learn latest techniques, use latest stock market investment software and need to devise your own trading plan.