The Facts About Stock Market Day Trading
A trader who performs stock market day trading is someone who opens and closes his positions very quickly, sometimes even within a single day. This can mean buying and selling stock market shares very quickly to turn a quick profit, or more usually, it can involve spread betting.
To get in and out quickly and make enough of a profit, a day trader may invest thousands of dollars on a single trade. This way a ten percent turnaround is a good profit. It could be his own money, but more likely, he might be working for a large investment bank or hedge fund, or even a spread betting company who hedge their bets against their clients.
A good trader looks for perfect entry points for his trades and also good exit points. Sometimes this is based on the news that the company releases. If they are about to release good news, then it could be a good time to buy their stock. Conversely if they will release news about a loss, or hostile takeover, then their shares may be about to fall quite a lot.
He will also be watching the news carefully for any good ideas about where to invest, and perhaps more crucially where not to invest. There are many good financial channels which provide up to the minute, real time data on the world’s stock exchanges as they open and close. All the news is relevant to his decision. A high tidal wave in a part of the world may affect an oil pipeline functioning in another, which could affect how corn is delivered in a third. It is the well-known butterfly effect.
While some traders rely heavily on the news and company results to find good trades, others have a complex system of technical analysis. This means that they look at charts of the stock prices. Usually they have access to these by subscribing to a share dealing service, or a similar service. There are many instruments which can be used to find entry and exit points in this way. A day trader will probably look at monthly or even daily price movements and his software will be able to flag up which shares are looking undersold or overbought.
Many people however choose to use both fundamentals and technical analysis on which to base their trades. This is a far better tactic because it makes allowances for sudden changes in the price. If only basing a trade on technical analysis, then a sudden, unexpected news story can send the share price into a nose dive.
A good day trader knows about all of these things in the back of their mind and keeps everything in mind at once and never forgets that the share price can go down as well as up. Planning how to get out of a trade is sometimes as important as deciding what and when to buy.
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