If you’re interested in investing, you probably have heard the terms “buy and hold” as well as “day trading.” These terms are two main ways to get profit or money as capital gain from a stock.
Earning Money from Stocks:
Buying and holding refer to investors who buy stocks then hold them for long periods of time, usually getting a profit by buying at a low price and holding until the stock price rises to sell.
However, day trading is another way to earn profit. This is similar to buying and holding, however, an investor usually buys and sells on the same day.
Disadvantages of Day Trading:
Day trading isn’t without its dangers. If you aren’t well-educated and/or well-funded, you may be at a big disadvantage in day trading and lose money. Some people also believe that it can help you get rich fast. However, that is not true as great reward comes with great risk.
What Do Day Traders Need or Have:
It is recommended to have experience and knowledge in the market, to not lose money needlessly. Also, having enough money to risk losing without bringing financial ruin to yourself is important because it prevents traders from trading emotionally. Next, like other types of investing, strategy is important. Some strategies include trading news and arbitrage or leverage. And lastly, having discipline, making trades that don’t follow your plan to earn a profit, is important as not having discipline may often result in losses.
A Day Trader’s Tools:
Like in many professions, day traders also have tools they rely on to make the best decisions in a short amount of time. First, some day traders (mostly belonging to an institution), have access to a dealing desk which is helpful in executing orders instantly instead of waiting. Another useful tool to have is multiple news sources. Trading news is a day trading technique, and news has the most opportunities for a day trader to profit from. Lastly, another useful tool is analytical software which is used by most day traders no matter who they are. Despite this tool being expensive, it is important to have if you look more at technical indicators to judge a trade.
Being a day trader is not without risks. However, if done properly (and successfully), you can make a living out of it. It is important to do your research, and practice before actually investing money into the market. Next, be sure to keep a level head and take your emotion out of your trades to commit to your plan. All in all, day trading can be a great way to make money, but it is not for everyone.
Written by Allie Chang