In the “What is Day Trading” Post, I will review many of the basics of Day Trading and hopefully answer your questions about What is Day Trading and how Day Trading Works?
Intraday trading is the process of buying and selling shares of any listed company within the same day before the market closes. The purpose is simple, they don’t want to invest money for the long term. They trade for quick gains by controlling the stock movement. Hence, the changes in the stock prices are tracked closely to earn profits and losses from the day trading.
This Post will also introduce some of the main tools and concepts of day Trading. So Let’s begin….
What is Day Trading? or What is Intraday Trading?
If You buy or sell the shares of any listed company on the same day, then This Process is called Day Trading or Intraday Trading. Day Trader looking for stocks that are moving in a relatively predictable manner and they are going to trade them in One Day. Day Trader will not keep any Position overnight.
Suppose If You Buy stocks in TCS today, for instance. You will not hold your Position overnight. You had to square off your positions before 3:15 PM even If You are in Loss.
You should be some understanding of the overall Market Situation, It is Bullish, Bearish, or Sideways. You as a Day Trader will not necessarily need to know about the market direction in the FutureYou are Day Trader, Your time span is measured in seconds and minutes, rarely in hours, and certainly not in Day or Weeks or Months.
How Day Trading Works?
#1 Buying Long, Selling Short.
Long:- Day Traders buy stocks in the hope that their price will go up. This is called buying Long or simply Long. If You buy 100 shares of Reliance so You can say that “ I am long 100 Shares Reliance” Going long is good when the price is expected to go higher but in that case, the Price is dropped. You will lose because your expectation to go higher but it goes Down.
Short:- If Prices are Dropping, In that case, You can Sell Short and still make a profit. Day Traders can borrow shares from their Brokers and sell them, hoping that the price will go down and that they can then Buy these Shares back at lower-Price and his difference of Buying and Selling Price is your Profit. This is called Selling Short or simply Short. Suppose If you Sell 100 Shares of Reliance so You can say that “ I am short 100 shares Reliance”. You can buy them cheaper than when you sold them earlier and make a Profit.
Short Selling is important because stocks Prices drop much quicker than they go Up because Fear is a more Powerful Emotion than Greed.
#2 Retail Traders vs Institutional Traders
Retail Traders like you and me, are called Retail Traders. We can be part–time or full-time Traders. We are work as an individual not working for a firm and We are not managing other people’s money. Retail Traders are a very small percentage of the Volume in the Stock Market.
On the other hand, There are so-called Institutional Traders such as Mutual Fund, Hedge Fund, Investment Banks, and Proprietary Trading firms. Institutional Firms are most of their Trading is based on Algorithm Trading.
#3 High-Frequency Trading (HFT)
Most Mutual Fund, Hedge Fund, Investment Banks, and Proprietary Trading firms base their trading on sophisticated Computer Algorithms and High-Frequency Trading (HFT).
In HFT some of these programmers are designed algorithms to predict the Market based on Past Market Data.
#4News Impact on Stock Price.
Stocks have unexpected Fresh News, either Positive or Negative. Here is some example…..
- Earning Report.
- Earning Warning or Pre- Announcements.
- FDA Approvals or Disapprovals (for Pharma Stocks).
- Merger or Acquisitions.
- Alliances and Partnership.
- Product or Service Release.
- Major Contract Wins or Losses.
- Management Changes.
- Stock Spilt and Buyback.
- Debt Offering.
And Much More…….
If You have any doubt regarding What is Day Trading, You can comment below this post. We are happy to help You.