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So You Want To Be A Day Trader?

Day traders have it easy. By easy, we mean they make easy money just by clicking a few buttons on their computer screen. The difficult part, however, is the analysis that comes along with day trading. Due to the complexities of being a trader, and the quick buck that someone with enough smarts can make out of it, day trading is often described as the “the most difficult way to make an easy living.”

A pure day trader buys and sells stocks, or any other investments, and then completely ends trading at the end of the day, cashes in with no open positions. If a position is held overnight, or for a long period of time, it is called a swing trade. Day traders use both approaches and this will depend on the nature of their business.

Unlike in the past where newspapers and golf courses were the best places to learn about the hottest stocks, currently, a high-speed Internet connection is the best tool for day trading. It’s possible to design and build your own trading platform but most day traders use a pre-packaged setup that are being sold or provided by brokerages or software companies. Day traders have multiple screens to display charts and technical indicators. It is impossible to trade fast without multiple screens because real-time news and data feeds appear simultaneously on different channels.

CME Globex, which was named “Exchange of the Year” by GlobalCapital, The New York Stock Exchange, and FOREX exchange are the most popular markets frequented by traders. FOREX remains the largest marketplace globally, averaging trades of around $4 trillion traded per day. The NYSE comes in at a distant second, averaging a daily volume of $74 billion.

Here are the trading hours for each market, all in EST, which was published by FXCM, a site that provides advice for day traders:

NYSE: Monday through Friday 9:30 am to 4 pm
CME Globex: Sunday to Friday 18:00 hrs to 17:00 hrs: Exact daily closing time is product specific.
Forex: Sunday 5 pm to Friday 4:55 pm

Day trading preparation: Technical Analysis

Technical analysis is quite possibly the most important weapon of a day trader. This is the skill used by day traders to base their decisions on. A trader looks for a convergence of support and resistance levels using the method of multiple time frame analysis or MFTA, which, according to Investopedia, is a way to analyze the pricing of a stock or commodity using charts documenting different time frames.

Day trading preparation: Fundamental analysis

Fundamental analysis operates under the assumption that in time, prices of stocks and securities will move towards its intrinsic value. Fundamental analysis is the idea that market prices move because of the economic data that individual companies release, as well as news that’s being reported by the minute by different news channels.

Trading demands sufficient capital, in order for traders to leverage on large positions. Traders use their money on relatively small price movements in liquid stocks or indexes with high volatility. You need price movements to make money. The higher the volatility, the higher the risks and rewards, and vice versa.

The success rate of day trading is estimated to be only at around 10%. So 90% of the time, traders are losing money. But don’t mistake day trading as gambling because 10% is a high probability, and anyone who is meticulous enough to research, refine his or her skills, and cut losses can become a great day trader. 90% of the time, a day trader loses money but that doesn’t mean they lose a huge chunk of their assets or entire capital. Good day traders make small losses but win huge gains, and this can be achieved by making good split-second decisions and sound trading based on technical and fundamental analysis.