Day Trading

There seems to be a misconception by many about what is day trading. Many people seem to feel that day trading is any form of trading. When you say you are “trading” the markets, they believe you are “day trading.” To these people day trading is rapid fire buying and selling in the market. You sit and stare at pretty colors and squiggly lines on a computer screen and play video games with your money.

Day trading has, of course, been around since the there have been markets. However, it rose to cult status during the late 1990’s Internet bubble. At that time there were stories of 16 year old kids skipping school to sit at home and day trade. When their parents got upset they would say something like “well I made $800,000 in this year, so ….” At the same time, all kinds of people were quitting “real” jobs in law, medicine, real estate, management, etc. to get rich day trading.

Most all of this disappeared when the Internet bubble burst in 2000 and those same people that quit jobs to trade never mentioned their foolhardy ways ever again.

Today, day traders still exist. The technical definition of a day trader is someone who takes a position in a security whether long or short and closes that position (and all other open positions) before the market closes for the day. Savvy and professional day traders have a well thought out trading plan. They know what securities they will buy or sell. They know what set-ups they need to see to pull the trigger. They know how much money they will risk on a trade. They know where they will place their stops. And, they know where they will exit the trade if it shows a profit.

Often, day traders know when the markets are most active and when they are quietest (active market periods mean a better chance of making money than during a quiet market period). They will therefore, glue themselves to their computer for certain periods of time during the day. At other times they will be more relaxed. Day traders do not necessarily make a ton of trades every day. Day traders tend to make select trades; trades that stand the best chance of making money. Make no mistake, a serious day trader plans the trade and trades the plan just like all other serious traders.

With all that said, in general, we at TrendingTrades take a somewhat longer term approach to trading the markets. We prefer to be in trades for days, weeks, months or even years depending on how big a move we think the stock will make. In future posts we’ll discuss swing trading and position trading so you can see the difference between all of these styles. The correct style of trading is, of course, the one that’s right for you.