How Does Day Trading Work?
In day trading you buy and sell stocks on the same trading day. Trading positions are usually closed before the market closes for the trading day.
Day trading can be differentiated from after-hours trading where there is a continuation of trading activity even after the regular marketing hours when the stock exchange closes.
If you buy and sell stocks during the trading day, then you are a day trader. One might think that day traders are living very hectic lives. In actual practice, this may not be so. In the course of a trading day, one may make several trades or you may just limit yourself to just one trade.
You may even just buy a stock on one day and sell it on the next day if you think that it is not profitable to sell it on the same day. There are no legal restrictions to finish off your trading activity the same day. You may have to pay some differential on brokerage if you carry your trade to the next day.
When the trading day is ending, most traders close their trading positions. You may have a strategy on a particular day or you may have a general trading style and outlook, and both of these types of strategies determine the trading frequency for the say.
Some traders simply focus on very short or short term trading. Some traders finish off their trades in a matter of minute or seconds. These are the trades who have a high frequency of trades during the day and they consist of high volume trades. They are the favorites of brokers who reward them with big discounts on commissions.
Some people don’t actually want this reduced brokerages. These people are not short term traders since their focus is on momentum or trends of the stock movement. These traders patiently wait for a strong move which can happen during the trading day. During the trading day, they only make a few trades.
Sometimes there is a gap between the closing and opening prices on a stock and this is why some traders make sure that all their stocks are sold before the market day closes. These people consider this practice as a golden rule which they follow religiously.
Still, other traders believe in allowing the profits to run so they stay with the position even after the market closes.
Day trading can give you quick profits and quick losses as well. Although you might think that day trading is like gambling, there is a marked difference between the two. IN day trading you need strategies and calculated moves which you don’t do when gambling.