Day traders are investors who use a strategy that is often referred to as “in and out.” Essentially, the day trader will engage in a series of transactions that involve buying and selling the same commodity during the same trading day. The goal of the day trader is to take advantage of an upward swing in the value of a given security by buying just before the climb begins and selling just before the price levels out or begins to drop.
A day trader does not tend to focus on any type of long-term position. That is, trades are not made with the intention of holding on to the acquired asset for an appreciable amount of time. Instead, a day trader may plan on purchasing securities early in the trading day, then realizing any type of increase they generate until late afternoon. Just before the trading day comes to an end, the day trader sells off the securities and prepares to engage in another round of day trading the following business day.
Unlike stock traders who lean more toward long-term investment activity, a day trader has to stay on top of market performance in a real time fashion. Doing so allows the trader to quickly sell off any security that is not performing up to expectations and move on to an offering that is currently demonstrating more potential. At the end of the trading day, the day trader has no type of established position remaining to carry over to the next day. Every new trading day brings about a fresh start.
When a day trader possesses a combination of good instincts and the ability to adequately read market indicators, engaging in this type of trading activity can be extremely lucrative. As a bonus, the quick in and out approach that is inherent to day trading leaves the day trader insulated from any type of events that may occur overnight and have an impact on the condition of the market at the commencement of trading the following day.
The day trader moves at a pace that may be considered to be break-neck for any stock trader who favors going with long-term holdings. In addition, some investors may shy away from day trading simply because of the amount of effort required in monitoring the current market conditions. Still, for an investor who enjoys the thrill of the chase and is able to devote sufficient time to buying and selling options at a rapid pace, day trading can result in substantial growth of the cash account.
