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their stock for only one day. They close their positions at the end of
every day and then start all over again the next day. By
contrast, swing traders hold securities for days and sometimes even
months and investors sometimes hold for years.
Day trading is about discipline and training of mind. The goal of a
day trader is to capitalize on price movement within one trading day.
Day traders maximize profits by leveraging large amounts of capital
to take advantage of small price movements in highly liquid stocks
or indexes. Day trading can be either extremely profitable or
extremely unprofitable, and high-risk profile traders can generate
either huge percentage returns or huge percentage losses. Some day
traders manage to earn millions per year solely by day trading.
Zero Overnight risk: One of the best advantages of day trading is
ability to close your position at or before the end of the trading day.
Increased leverage: Day traders usually need to put up less money
to get into day trading and succeed at it. Because of low margin
requirements for day trades you enjoy a greater leverage on your
trading capital. This increased leverage can multiply your profits.
Profit in any market direction: Unlike long term investors who keep
their stocks for long duration to capitalize only bull market, day
traders can take advantage of both rising and falling market.
Fading: Fading involves shorting stocks after rapid moves upwards. This
strategy involves a considerable amount of risk. But it is also more profitable.
The fading strategy is based on three assumptions: i) the stock is
overbought, ii) early buyers are ready to begin taking profits and iii) existing
buyers may be scared out. Although risky, this strategy can be extremely
rewarding.
Daily pivots: This strategy involves profiting from a stock’s daily volatility.
Pivots are extremely useful tool for range-bound traders to identify points of
entry and for trend traders and breakout traders to spot the key levels that
need to be broken for a move to qualify as a breakout.
Momentum Trading: Momentum trading is when a trader sees a
stock price picking up and joins it. This strategy usually involves
trading on news releases or finding strong trending moves
supported by high volume. The investor will take a short or long
position in the stock anticipating that the momentum of the stock will
continue. Here the price target is when volume begins to decrease
and bearish candles start appearing.
To engage in momentum trading, you must have the mental
focus to remain steadfast when things are going your way and
to wait when targets are yet to be reached. A momentum trader
is only concerned with stocks in the news. These stocks will be
the high percentage and volume movers of the day. Momentum
trading requires a massive display of discipline, a rare
personality attribute that makes short-term momentum trading
one of the more difficult means of making a profit. Let’s look at
a few techniques for successful momentum trading.
Dr. Alexander Elder had designed an impulse system for momentum
trading. To identifying appropriate entry points the system simultaneously
uses two indicators:
indicators