Day Trading Could Become Appealing to Stock Investors

It could be about losing one's shirt because the undertaking known as day trading is totally different from stock investing as stock investing is a mid to long term investment. This means, long term investors do not sell their stocks because of a small fluctuation in price, and what they do is they have the patience to wait until they think the rise in price justifies what they consider a reasonable profit taking. On the other hand if they are convinced that the price of the stock they are holding is going to plummet and the likelihood of making it back to where it was or supposed to be is slim, they could sell that stock in order to avoid further loss, but it will not happen within the same day they bought the stock.

This is what the glaring difference with day trading is, where the day trader will buy a given number of stocks in a given day and would sell them when the price goes up to what the trader thinks will justify profit taking. Or at times if the price goes down and stays there for a while it is possible that such a stock would be sold within the same day in order to avoid a bigger loss and the trader will be willing to realize a certain amount of loss. In most cases day traders do not hold stocks overnight fearing that the price could plummet the next day, instead they would sell at an amount they think is profitable during the day.

It is possible to make profit through such trading while at the same time it is possible to lose money, but the whole arrangement is so aggressive it is considered a special kind of trading process, where those that are engaged in it have to work full time. Otherwise, it is possible to lose a lucrative opportunity to sell when the stock had reached a certain high point.

The nature of the stock exchange is such that there are a big number of people in the market selling and buying stocks and it is the demand and supply that will fluctuate the price of the stocks. If many people are buying a particular stock there will be a shortage of that particular stock, but if many people are selling the same stock, unless there are buyers the price of stock will go down. And here the day traders can play a pivotal role although it does not have any permanence, because when they spot the price of a stock moving up, a big number of them could rush in and buy the particular stock with the hope to exit when it reaches a higher price. Those who want the particular stock for a long term investment will have no other choice other than forking out the asked price, or they might wait until the price stabilizes.

It is here where day traders make their money, because investors could buy stock for many reasons, all of which is not investment and the minute ups and downs do not interest them. There are companies that want to buy stocks of a certain company in order to hold a good position that could be useful for a future takeover, or to get involved in the decision making process of the company. Or there could be institutional investors that have money on their hand that they have to work with to realize profit for their customers, which will not leave them much choice other than investing on available stocks with the going price. Companies, sometimes buy their own stock for various reasons, one of which could be to stabilize the price.

Consequently, it is difficult to say whether day traders have a useful role to play or not. Since they could contribute to an artificial rising in the price of certain socks, without the stocks having the inherent value that reflects their true market value, their activity had raised an ethical and legal question. Every effort to curtail the rising number of traders is being put in place and because of the highly risk-oriented nature of day trading, those who are involved are required to put a certain amount of money with a brokerage firm that should always be there while they conduct their trade and in no time at all their activity should bite into that amount called a margin.

If more than 6% of a balance in an account is day traded within five business days, such account holders will fall in a classification called "pattern traders" and are required to deposit a $25,000 margin. The margin requirement is to cover equity and maintenance that could be nonexistent if the traders sell the stocks the same day, while at the same time they could deplete the balance in their account. Indirectly, it might also deter the number of players who cannot furnish the requirement.

The margin comes down to $5000 to individuals who are not pattern traders who will open accounts with the numerous brokerage houses to trade and such individuals could use borrowed money and could end up making money or could lose it, ending up being in debt. Those who want to trade with the online trading companies are required a minimum of $500 or more margin to trade stocks. Again, the grim statistics has it that almost 90% of day traders lose their account, where at least 10% go bankrupt. In spite of this glaring reality, there are determined traders who are using very sophisticated methods to help them make money for themselves and for their clients. There are a big number of sets of rules to follow even if there are people who trade by simply following the ups and downs of the stocks they bought.

It is difficult to pin point the secret of those who are making profit through day trading on an ongoing basis, but the truth is there should be something that is more than luck. The suggestion from experienced day traders is difficult to follow to the point where everyone, more or less, has to have their own mechanisms. Nevertheless, there are some who say knowing the buy and sell signal is very important. Whereas others say that alone does not make a trader successful even if to read the correct buy and sell signal there are methods to be relied upon such as Fibonacci retracement levels, moving averages, Gann etc, that have their own learning curve for starters. Some also recomend blending the available trading methods with individual personalities. In addition, the traders need a lot of confidence, thorough knowledge of the trading system, and adequately funded account is also a must to attain any success rate.

Other aspects that should be part of the makeup of the traders' mindset are knowing in advance how much equity is required to start, or what kind of risk to take initially, or the fact that being undercapitalized could be a pitfall and should be highlighted since any shortcoming in this area could complicate the whole undertaking. The experts classify traders into various categories such as breakout traders, those who like to join an already established trend, congestion traders, reversal type traders, mechanical signal traders, etc, yet the majority of traders fall into the first two groups.

The breakout traders will look for a valid break on earlier trades and will start at that particular level, whereas the trend followers will have to apply all the known methods to read the trend so that entering a trend in the opportune time will be possible. This shows that there is a vast amount of technicality involved and those who will succeed in the game of day trading are those who are in a good position to apply these techniques and adhere to them on a regular basis.

The conclusion is, because it is made to look very fancy and explanations had been put in place for the reason behind every failure or success story, it looks like it is made to look more scientific than gambling, whereas the truth is there is no real method that will ascertain which direction the price of the stocks will be taking. Undeniably, there are some that are thriving in doing it, as there are some that had been losing their shirts over it. What is advised is to be careful with the expectation and it is important to know good capitalization is key to continue trading. Putting high exceptions in a perspective is highly recommended, as it might not be possible to make a large profit quickly. New traders should not expect to bring change on their situation overnight, especially measures such as quitting a daytime job has to be avoided early on, as the outcome could go either ways. Last but not least, the money allocated for trading has always to be money if lost would not affect the lifestyle of the trader.