Are you thinking about dipping your toe into the wild and crazy world of day trading? It’s a massive subject and there is a lot to know. It is not for the faint of heart. It takes patience, self-discipline and a high-risk tolerance.
Trading Strategies
The three most widely used strategies in trading are:
Buy & Hold – Buy & hold does exactly what the name implies. You, as the investor, buy a financial instrument and hold it, hoping for an appreciation of the asset. This is widely viewed as “traditional investing”. You buy a stock, and then hang on to it, hoping to sell it when the price has risen higher.
This strategy formed the bulk of conservative investing for the last 100 years. You can look at the S&P or Dow Jones index on a chart, and see that it has risen since its inception in around 1915. It has been very sound advice. The one big drawback to buy and hold investing, is you have to have the nerve to hold during a downturn or crash.
Swing Trading
Swing traders also buy stocks or other financial instruments, but don’t look to hold them for long periods. Typically, from a few days to a few weeks. They are looking to profit from short-term appreciation and sell before there is a major downturn or crash that would result in a loss.
Swing traders often continue to hold their day job, and do their investment analysis and trading when they are not working. Since you are holding for a few days or months, you don’t need to be constantly glued to all the short-term market volatility.
Day Trading
Day traders make purchases of stocks or other financial instruments and sell or get out of the trade on the same trading day. They look to profit from multiple short-term trades, making a small amount off each trade.
Day trading can be done after market hours. There are trading markets around the world 24/7 which provides tremendous flexibility.
Day trading takes concentration and decisiveness. You may spend hours watching markets, waiting for a trading opportunity. Successful day trading requires self-mastery, as you must keep your emotions in check. Fear-of-missing-out and greed have to be quelled or kept under tight rein.
Trading Instruments
Financial instruments are simply assets that can be bought and sold. There is a host of instruments you can trade. Most successful traders limit themselves to one or only a few types
One of the most popular styles is to trade indices. A stock index measures the performance of a group of stocks. Trading indexes allow you to take advantage of an entire economy or a selected portion.
Other financial instruments commonly traded by day traders include:
- Individual Stocks
- Currency Pairs
- Oil
- Gold
- Government Bonds
It’s an exciting, often nerve-wracking experience, but today’s financial realities, are driving more and more people to look into the enormous profit potential of day trading.