Do You Know The Fundamentals Of Day Trading?

Filed Under Finance |

by John Spencer

If you can study and understand the concept of day trading, you have the potential to be a successful day trader. You need to be aware of how and why share and stock prices fluctuate. Day trading is all about buying and selling commodities or shares in a day. You normally need to close all your share positions at the end of the trading day.

If you have stocks moving with a large volume, this usually means that one person has purchased a lot or several people have been buying these stocks. You might wonder why this occurs because this is not what usually happens in day trading.

It normally means that these people have some information about the stock which you do not. The feel a large scale investment in a certain stock will pay off. If a stock doesn’t move much in day trading, this means that not many people have bought the stock, or not much has been traded.

There is a rule used in day trading when you short a stock. This is called the uptick rule. It is used in day trading to stop the stock going down too quickly. An uptick has to be executed in markets meant for selling stocks. If there is not an uptick and the stock falls, you will be executed for the fallen price. This can be prevented if you place a limit order.

If you use a limit order, it doesn’t matter whether or not you are filled at this price because you are ensured that slippage will not occur in your stock. Down trends occur quicker than up trends in day trading, so with the uptick rule, you will either miss big moves because of your limit order or lose money because of big slippage. It is better to miss big moves than lose money, so you should always use a limit order when you are short selling in day trading.

Sometimes you may consider doing day trading in a partnership. This is an advantageous proposition as the person having money and experience proves to be invaluable to the novice in day trading investing. Thus as partners, trading can be done in large sizes and thus lead to better profits.

The only potential problem with partnership is that you have to make sure you both agree on trading decisions and contingency measures. You might end up arguing unless you sort this out first.

You should choose your partner with care. It should be someone you have known for a while and who you trust implicitly. If you disagree with your partner’s trading methods or do not trust him, it is better to be a sole day trader.

When taking part in day trading, it is important to conquer the five human weaknesses; pride, jealousy, greed, fear and ignorance. Greed and fear are quite common in day trading where greed makes a person trade for too long and in too large sizes. With fear, you may get out of your winning streak too early in the game.

It is best to have a detached attitude if you are day trading. You must be happy to take risks, you need to be flexible and always willing to learn more. Everyone who is in day trading has to start somewhere but the key is learning as you progress, in order to understand more about the day trading market and become better at it.

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