Day Trading

Day Trading

Day trading is considered the form of speculation where the trader buys and sells the financial instruments on the same particular trading day. This is done to make sure that all the positions are closed before the closedown of the market for that specific trading day to avoid the uncontrollable risks and the gaps in the price that are between the price of the end of the day and the price of the next day at the open.
In the day trading process, the traders usually use the leverage as a margin loan. Initially, the day trading process was considered an activity to the financial firms and the speculators who are professionals.

The Basics of Day Trading

The day trading process is associated with buying and selling of securities that are available on a specific trading day. It can occur in a variety of markets, the most common of which would be foreign exchange and stock markets. When we talk about day traders, we’re talking about people who are both highly educated and well-funded.

There are innumerable intraday strategies that can be employed today traders, including:

  • The scalping process has the ability to attempt to generate ample small profits even on minor price changes all through the day.
  • Range trading is a strategy that involves using support and levels of resistance to make decisions about buying and selling.
  • Trading based on news is a strategy in which trading opportunities arise directly from the volatility surrounding the news.
  • Last but not least, the high-frequency trading strategy employs sophisticated algorithms to exploit market inefficiencies, both small and short term.


How Day Trading Works

It should be noted that day traders primarily rely on and focus on stock or market fluctuations to profit.

Traders are attracted to stocks that bounce a lot throughout the day, regardless of the reason for the bouncing. It could be a negative or positive cause. On the other hand, highly liquid stocks are preferred by traders because they allow them to move in and out of the market.

Day traders can purchase shares when they are rising in price or when they are falling. Day traders can even buy a particular stock more than once and then sell it to capitalize on changing sentiments. After all, the primary goal of day traders is to keep the stock moving.

This is actually how the day trading actually works.

Day Trading Rules and Risks

Day Trading Rules and Risks

Rules of the day trading

When we talk about it, we know that different platforms have their own set of unique rules and regulations.

Any rule associated with the stock market is not about the moral of the wrongdoings. It is totally about the risks that are related to the strategy of the investments.

Some common rules are:

The pattern of the day traders

It is basically someone who has the potential to complete the four-day trades in a single week. The trades can place on account of the margin and create up to 6% of the total trader’s activity.

Margin calls

According to the FINRA that stands for Financial Industry Regulatory Authority, the traders should meet a margin for maintenance and requirements of 25%. This simply means that the individual has to withhold about 25% of the equity rate after purchase. If the rate is not maintained, the brokerage can choose to sell the securities without the consent of the individual.

The Risks in the Day Trading

All over the stock market, you can rad ad hear about the warnings of day trading. To your great surprise, even the SEC gives messages regarding the day trading and warnings to be prepared to meet sufferings along with significant financial losses.

Day traders have been trading with the borrowed money, as well as mentioned in the warnings.

As we know, day trading is not playing the long game, and when the market is volatile, the practice has the ability to make the individual lose money easier than investing in strategies.

Sharing day trading in this regard and its risks and rules is thought to be very important, and it keeps people from squashing their portfolios.

Types of Day Trading

The majority of the day, traders choose a single type of trade in general. Some traders will take different types and choose to trade based on the state of the market currently.

Some types are:

  • Trend Trades

In this type of day trading, traders are basically against the current direction of the movement of the price, such as the case where the price moves upward.

  • Counter Trend Trades

It is about the trades that are moving against the direction of the current movement of the price, such as the process of selling when the price moves up.

  • Ranging Trades

It is about the trades that have the potential to go back and then forth in their range between their prices and then used in the situation where the market moves sideways.

Swing Trading Vs. Trend Trading Vs. Buy and Hold

Swing and trend trading is prone to taking risks in both the downtrend and the uptrend and the trend changes that have been positioned. In this regard, swing traders can operate within the confines of range-bound markets and purchase at support and sell at resistance.

Swing trading works best for short time frames, whereas the trend follows specific strategies that can be used for months. Each method can define appropriate boundaries and adjust risk management to address the characteristics of hybrid strategies.

Coming to buy and hold approach is all about the investment approaches that work, as its name suggests. The investors, in this case, tend to buy stocks as well as investments to hold up to many years. Sometimes the asset goes up to decades.

Buy and hold strategies are basically based on the premise of the market that has the potential to rise even in the long run. In case a good portfolio of stock is purchased, and it is good, you can leave it alone and see the value increase steadily.


As an investor, you should always keep in mind that it is imperative to know certain rules surrounding the day trading process. You should know how to avoid being a pattern day trader as well.

The risks of day trading should be vivid for you and not only the way the day trading works.

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