June 23

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What is day trading- pros and cons?

Day traders purchase and sell stocks throughout the day in the hopes of profiting from minor price changes in highly liquid equities or indices. There are various strategies and practices to take the best advantage of the equity markets. The ideal condition is similar to investing in that it entails purchasing low and selling high, but in this instance the time scale is reduced from years to hours. 

In simple terms, you can explain day trading as the purchase and sale of the assets and the securities in the same day. By executive a good number of sales, day traders can make good amount of money for a good living standard.

It is important for day traders to stay up-to-date. Therefore, a trader needs a portal for real-time news and company data, as well as detailed price charts and second-by-second charting software. Other tools—that are seldom thought about as much—include a computer with a good graphics card, a good tax program such as TurboTax Deluxe to handle capital gains and losses, and a stable internet connection.

Some of the essential tools which can help the day traders to be updated are the real time news and data of the companies, security price charts to technically analyses the securities and electronic communication network to understand and make the best choices possible. 

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Strategies for Day trading:

There are various strategies which are available for the day traders which can help them to trade:

  • Momentum

This technique often entails trading on press releases or identifying significant pattern moves backed by large volume. Also, if any negative news is highlighted about the company, then it has straight effect on the stock prices where in the prices drop and the vice versa. 

  • Scalping 

It is the most commonly followed strategy. This strategy will help you to earn better profits and reduce the losses that you may incur. It longs for a very short period of time and the idea is to close the trade the moment an individual start incurring profit. 

  • Breakout

It is a technique which involves detecting periods when the stock price climbs above or falls below defined levels, accompanied by an increase in trading activity. There are two conditions which usually takes place and those are if the price of the stock decreases to a certain limit, then the trader sells the stock and when the price of the security increases to a certain limit, an individual buys the stock. The limit is the observation which is to be made 

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Pros of Day trading:

  1. It is a very fast process which helps you in gaining instant results. There are only two possibilities i.e., either you start losing money as it is moving in the opposite direction or vice versa. 
  2. The traders do not require much time to gain money and earn profits. The main area that the traders need to be aware of is monitoring it well and so less trades are fine too. 
  3. There are comparatively very less associated risks as their traders do not hold the positions overnight. Due to this, no midnight news can affect the stocks and it does not concern the trader. 
  4. It is very easy and feasible to start. You just need proper knowledge about the stocks to start trading. 
  5. Day traders can even achieve success in the tough economic situations as their trades are short lived. Proper strategies can help them to gain profits. 

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Cons of Day trading:

  1. It can cause financial losses as it is a very risky. There is no particular promise that day trading can earn you money so it is essential for the trader to be knowledgeable and have proper planned strategies. 
  2. It is not feasible for everyone who have their regular jobs as day trading requires an individual to monitor the traded stocks and pay attention to all sorts of market news. 
  3. By making a lot of trades, the cost of trading will increase in the form of commissions and fees. Payment of such costs will reduce your gained profit. 
  4. The money which you earn in short term and are held in the securities for a period less than a year, then it is subject to income tax. 
  5. Also, the smaller duration of trade can equalize with smaller profits as usually individuals end the trade the moment, they start earning the profit which tends to give them very small profits. 

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Conclusion:

Day trading is a very controversial topic as people have different opinions on it. Even though, it depends on an individual, day trading plays a huge role in the market. They help the market to have liquidity and efficiency. Also, we can conclude that the day traders needs to be experienced and properly educated with the strategies and concepts which can help them to make better decisions while trading.

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