By Tony Jacowski
Published: November 26, 2007
There are two types of day traders – scalper and momentum traders. The scalper buys and trades stocks within minutes, whereas a momentum trader buy stocks that fluctuate from high to low during the day. But at the end of the day, the ultimate goal of a day trader is to buy stocks and sell them at the highest possible value.
A trader should be knowledgeable in paper trading and risk management. Traders keep themselves updated by reading stock exchange periodicals. It is essential for a day trader to absorb the relevant information completely and regularly. New York Stock Exchange and the National Association of Security Dealers impose minimum margin requirements for day traders.
A day trader’s world is full of risk, where fortunes can change by the minute, depending on unpredictable market swings. Besides luck, the profit of a day trader depends upon how vigilant and fast they are. The trader’s analytical, as well as risk management skills also determines success. The element of unpredictability is evident in every aspect of their work, ranging from holding positions on long trades that involve purchasing the stocks at a low rate and selling it later at a higher rate, to short selling that involves the reverse of long trades. This involves selling the stock at high rates in anticipation to compensate it when the prices fall, to speculating without being bothered with the fundamentals and technical aspects of the trade.
Characteristics Of A Day Trader
• Believe in their efforts and do not pay heed to rumors.
• They have a sharp analytical ability.
• They are strong-headed people, who are not affected by the prevalent market trends.
• They employ a mathematical approach.
• They work towards understanding the latest regulations related to trading fees and taxes.
• Day traders are not affected by the fluctuation of financial indicators such as NASDAQ and DOW JONES.
Anyone can become a day trader by opening a trading account with a brokerage company or a stock exchange or bank, provided it allows trading. You need to fulfill certain legal and commercial formalities, before initiating trades. You can become a day trader in any one of the following categories:
• Stock, bonds and securities.
• Foreign Exchange Currency
• Commodities – such as metals and food grains.
In order to be a successful day trader you need to be very cautious about every step you take, since a single mistake can turn successes into failures. You need to respond to liquidity and volatility quickly. Though day trading is a lucrative career, you need to keep in mind that you do not become an experienced day trader overnight. It requires time and rigorous practice. If you want to pursue day trading as a career, then you need to practice on a trading website to gain confidence in the application of new techniques and implement them in your career.
Tony Jacowski is a quality analyst for The MBA Journal. Aveta Solutions – Six Sigma Online ( http://www.sixsigmaonline.org ) offers online six sigma training and certification classes for lean six sigma, black belts, green belts, and yellow belts