BROWSE

Day Trader

Definition

A day trader is a trader who adheres to a trading style called day trading. This involves buying and subsequently selling financial instruments within the same trading day, such that all positions will usually be closed before the market close of the trading day. Depending on one's trading strategy, trades may range from several to hundreds of orders a day.

What is a 'Day Trader'

A day trader engages in long and short trades in an attempt to profit by capitalizing on the intraday movements of a market’s price action resulting from temporary inefficiencies in the supply and demand of the moment. A day trader often closes out all trades before the market close and does not hold any open positions overnight. Some day traders use leverage to magnify the returns generated from small stock price movements.

Explaining 'Day Trader'

Day traders are handicapped by the bid-ask spread, trading commissions and expenses for real-time news feeds and financial analysis packages. Successful day trading is a skill that requires extensive knowledge and experience to master. For those day traders that master the skill, opportunity for making profits is abound.

What Day Traders Trade

Unlike investors who use fundamental data to analyze the long-term growth potential of a corporation in order to make a decision to take a long position in its security, a day trader is more concerned with price action characteristics of the security itself. Price volatility and average day range are critical to a day trader. A security needs to have sufficient price movement over the course of a typical day in order to attempt to capture some of that movement for profit. Volume and liquidity are also crucial to a day trader in that entering and exiting trades quickly is vital to capturing small profits per trade. Securities with small daily range and light daily volume are not well suited for day trading.

How Day Traders Trade

Day traders key on any events that create a short term movement in the market. Trading the news is a popular technique that day traders use. When scheduled announcements regarding economic statistics, corporate earnings or interest rates, and do on, are announced, there are always expectations by market participants. When those expectations are not met, or exceeded, markets usually make sudden and large moves, which day traders attempt to seize upon.


Further Reading


Day traders and the disposition effect
www.tandfonline.com [PDF]
… Page 2. The Individual Day Trader Abstract This paper shows that individual day traders are reluctant to close losing day trades. They even sell other stocks from their portfolios to finance the unintended purchases …

The anatomy of day tradersThe anatomy of day traders
papers.ssrn.com [PDF]
… Page 2. The Individual Day Trader Abstract This paper shows that individual day traders are reluctant to close losing day trades. They even sell other stocks from their portfolios to finance the unintended purchases …

Fear and greed in financial markets: A clinical study of day-tradersFear and greed in financial markets: A clinical study of day-traders
pubs.aeaweb.org [PDF]
… Page 2. The Individual Day Trader Abstract This paper shows that individual day traders are reluctant to close losing day trades. They even sell other stocks from their portfolios to finance the unintended purchases …

The cross-section of speculator skill: Evidence from day tradingThe cross-section of speculator skill: Evidence from day trading
www.sciencedirect.com [PDF]
… Page 2. The Individual Day Trader Abstract This paper shows that individual day traders are reluctant to close losing day trades. They even sell other stocks from their portfolios to finance the unintended purchases …

The profitability of day tradersThe profitability of day traders
www.tandfonline.com [PDF]
… Page 2. The Individual Day Trader Abstract This paper shows that individual day traders are reluctant to close losing day trades. They even sell other stocks from their portfolios to finance the unintended purchases …

Day Trader Behavior and Performance: Evidence from Taiwan Futures MarketDay Trader Behavior and Performance: Evidence from Taiwan Futures Market
www.tandfonline.com [PDF]
… Page 2. The Individual Day Trader Abstract This paper shows that individual day traders are reluctant to close losing day trades. They even sell other stocks from their portfolios to finance the unintended purchases …

Optimism and economic choiceOptimism and economic choice
www.sciencedirect.com [PDF]
… Page 2. The Individual Day Trader Abstract This paper shows that individual day traders are reluctant to close losing day trades. They even sell other stocks from their portfolios to finance the unintended purchases …

The end of behavioral financeThe end of behavioral finance
www.tandfonline.com [PDF]
… Page 2. The Individual Day Trader Abstract This paper shows that individual day traders are reluctant to close losing day trades. They even sell other stocks from their portfolios to finance the unintended purchases …

Lottery players/stock tradersLottery players/stock traders
www.tandfonline.com [PDF]
… Page 2. The Individual Day Trader Abstract This paper shows that individual day traders are reluctant to close losing day trades. They even sell other stocks from their portfolios to finance the unintended purchases …



Q&A About Day Trader


Why is liquidity crucial for a day trader?

Liquidity refers to how easily one can enter and exit positions without significantly affecting prices. It also refers to how many shares are available at any given time on which you can trade on with minimal impact on share prices. If there are few shares available, then it may take longer than usual for your order(s) to be filled at your desired price level; this could potentially cause you losses if you were trying to capture small profits per trade due answer question number five above . If there are too many shares available, then your orders may get filled at undesirable prices; this could also cause you losses if you were trying to capture small profits per trade as well Answer question number five above . In both cases, these scenarios would prevent one

Why is average daily range important for a day trader?

Average daily range provides insight into how much prices fluctuate over time. This information helps determine whether or not there will be sufficient movement during a typical trading session.

Why is volatility important for a day trader?

Volatility is important because it allows for more opportunities to make profits.

How do some day traders use leverage to magnify returns generated from small stock price movements?

Day traders can use leverage, or borrowed money, to magnify returns generated from small stock price movements.

What does it mean to close out all trades before the market closes?

To close out all trades before the market closes means that all positions are closed prior to closing bell.

What is a day trader?

A day trader engages in long and short trades in an attempt to profit by capitalizing on the intraday movements of a market's price action resulting from temporary inefficiencies in the supply and demand of the moment.