Tell a stranger that you are a stock trader and immediately comes the reply, oh so you are a day trader. Well, it is not their fault because most people automatically assume that trading is only day trading. After all, day trading has become famous thanks to its exposure and coverage in the media.
If you wish to familiarize yourself with some of the key aspects of day trading, then continue reading this article as we have covered them along with the pros and cons.
What is Day Trading for Beginners?
Day trading is simply a strategy where you buy and sell the stock or its derivative on the same day. This means that you are not taking delivery of the position. You are relying on price momentum to make some quick money on your trades on the same day. And you have to constantly scan the market for your trade setups.
Let us go over some of the key merits and demerits of this style of trading.
Merits and day trading guide
✔ You are practically your own boss. This can potentially help you escape the corporate job if this is your goal. Note that I used the word “potentially”. The potential is obviously there, but equally present is the risk. But for now, understand that day trading will give you the freedom to trade whenever you want, and as much as you want.
✔ Day trading eliminates your risk to after-market news and/or events. The result – you are saved from gap-ups and gap-downs that can lead to a significant destruction of capital if the risk is not managed properly.
✔ Similar to other forms of trading, day trading requires proper rules and setups. It can be anything under the broad umbrella of technical analysis (price action, indicators, volume, volatility, etc.) or data analysis (option chain, futures, and so on).
✔ It is possible to make a huge amount of profit since you will take multiple trades in a day by using the margin facility of the broker. But it can also lead to big losses if you don’t put stop losses and the market moves against you.
Demerits:
⚠ Be prepared to spend most of your time in front of the computer screen as day trading requires active trade management. If you are good at automating strategies, then the scenario might be a bit relaxed for you.
⚠ Since it is time-consuming, it is advisable for full-time traders.
⚠ Day trading requires quick action; hence, you have to take trades quickly and precisely in your desired areas.
⚠ Since you will be taking small profits, you will have to do this repeatedly. Sometimes it can be mentally exhausting.
Conclusion
If you are reading up until this point, you would have a fair idea of the key merits and de-merits of day trading. If you prefer a fast-paced world of trading where you can get in and out of trades quickly, then day trading will be suitable for you. But, remember that risk management and position sizing are the only tools that will help you survive in this market.
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