Day Trading is not for the feint of heart. In order to be successful at this type of trading you need to have sharp wits and the ability to stay calm in situations that could make the average person very emotional. If your emotions play a big part of your mental makeup I would suggest avoiding day trading altogether.
For those who don’t know, day trading involves buying and selling stocks during an extremely short time frame, usually not holding them for more than a day, hence the name. To be successful you need to be able to read signs of impending moves in the market, jump in before the majority of people know what is moving and to jump out as the move begins to subside. It is similar to trying to ride a wave, you want to jump on just as the water is beginning to swell and jump off before the wave crashes. It takes nerves of steel and a sure hand to really make it as a day trader.
Most successful day traders have a section of the market that they become intimately familiar with. They probably don’t know the broad range of things going on, but in their area, they are bona fide experts. The ‘secret’ is working with stocks that have regular high volumes of trade (minimum 300,000 shares traded daily) so that lots of shares are trading hands on a regular basis. Situations like that mean that there can be large fluctuations in the price per share, and that is where the money can be made.
The formulas that are followed are usually very technically oriented and traders don’t have much interest in the long term value of any given stock. There is no interest in dividends or the health of the company, just what is going on right now and in the very near future. If a rumor is floating of a merge or a new technology that is usually enough to start a wave of interest in a company, and that will have day traders salivating.
In general day traders are dealing with a lot of currency. They are not small time operators, but usually have large amounts of money and are trading big blocks of stocks. Some of them deal with ‘penny stocks’ (stocks priced under $5 per share) but some also deal with higher priced stocks.
In any case, day traders understand (and wanna-be day traders need to understand) that the money used has to be money they can afford to lose. Occasionally, even for the most experienced day trader, deals can go south and pretty much the entire bankroll will be lost. This is where some people can get in trouble if they allow emotions to get too involved.
Another factor in day trading is having the discipline to know when to walk away. Kenny Rogers said, “you gotta know when to hold ‘em and know when to fold ‘em” and this applies to poker and to day trading. Discipline means having your strategy and not straying from it. Having a “feeling” and straying from your plan has cost many a man his livelihood.