Professional day traders—those who trade for a living rather than as a hobby—are typically well established in the field.3 They usually have in-depth knowledge of the marketplace, too. Here are some of the prerequisites required to be a successful day trader.
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Risks of Day Trading
For the average investor, day trading can be a daunting proposition because of the number of risks involved. The U.S. Securities and Exchange Commission (SEC) highlights some of the risks of day trading, which are summarized below:
Sufficient Capital
Wise day traders use only risk capital that they can afford to lose. This protects them from financial ruin and helps eliminate emotion from their trading decisions. A large amount of capital is often necessary to capitalize effectively on intraday price movements, which can be in pennies or fractions of a cent. Adequate cash is required for…
Discipline
Many day traders end up losing money because they fail to make trades that meet their own criteria. As the saying goes, “Plan the trade and trade the plan.” Success is impossible without discipline. To profit, day traders rely heavily on market volatility. A day trader may find a stock attractive if it moves a lot…
Day Trading Example
A day trade is exactly the same as any stock trade except that both the purchase of a stock and its sale occur within the same day, and sometimes within seconds of each other. For example, say a day trader has completed a technical analysis of a company called Intuitive Sciences Inc. (ISI). The analysis…
Why Day Trading Is Controversial
The profit potential of day trading is an oft-debated topic on Wall Street. Internet day-trading scams have lured amateurs by promising enormous returns in a short period of time. Some people day-trade without sufficient knowledge. But there are day traders who make a successful living despite—or perhaps because of—the risks. Many professional money managers and…
Should You Start Day Trading?
If you’re determined to start day trading, be prepared to commit to the following steps:7 If you follow these simple guidelines, you may be headed for a sustainable career in day trading.