Understanding Day Trading Key Characteristics Features
Day trading is a speculative form of trading whereby financial instruments like stocks,
commodities, metals, indices, futures, or currencies are bought and sold within the trading
day. It’s a strategy that usually sees a trader entering and exiting positions before the market
closes for the day. Since positions are closed within the same day, the trader mitigates the
risk of capital loss associated with holding positions overnight, bypassing in a sense the swap
charges but which come in effect at the end of the each day’s trading session.
The forex market is open 24/5 and is divided into 4 major trading sessions based on the
opening and closing times of the world’s major financial markets, namely Sydney, Tokyo,
London, Frankfurt and New York. This provides plenty of trading opportunities for traders
looking to trade the different sessions. Day traders attempt to capitalise on small price
movements within a single trading session.
Key features of day trading
- It is a short-term strategy whereby traders execute multiple trades a day, seek to make
gains from small price fluctuations. This necessitates that the trader dedicates
considerable time to continuously monitor the markets. - Day traders primarily use of technical analysis when executing trades. This involves
analysing trends and utilising charts, patterns, and technical indicators to make
financial decisions. - The use of leverage is very common in day trading. It allows a trader to handle larger
positions (increase exposure to the market) with limited available capital.
Key characteristics of a day trader
- A day trader is usually someone who has loads of time to dedicate to market analysis
throughout the trading day. - They typically like to know the outcome of their trading decisions by the time the
market closes at the end of the day. - Their goal is to potentially profit from short-term price movements of assets.
- They have the ability to handle the stress that comes with monitoring markets all day
long.
Day trading can be effective for experienced forex traders, but beginners may struggle with
its challenges and stress. Without a solid trading plan and the discipline to follow its rules,
inexperienced traders might feel overwhelmed by the pressure of day trading.
In summary, some of the benefits of day trading include the potential for immediate
outcomes, avoidance of overnight risks, and the absence of overanalysing. Conversely, the
drawbacks may involve the need for a sizable initial investment for significant gains, lower
profits with smaller stops (SL), limited time for decision-making, the necessity for discipline,
and the risk of excessive trading.