Most people know about the stock market, also called Wall Street, and when they hear about trading stocks images of the trading floor pop into their minds showing crazy people yelling and screaming with little pieces of ticker tape. But having day trading explained can help you learn the basics now that will help you be successful.
What if I told you that you could get in on that action from the comfort of your own home? Well, get ready because that’s exactly what you’re about to read.
What is Day Trading?
The easiest way to explain Day Trading is like this – a Day Trade is any buying and selling of the same stock within the same day. Big surprise, right?
The concept is very straight forward and easy to understand, but there are other types of similar trades that would not actually be considered a day trade, but you can learn about those here.
If you’re thinking – “ok, so you buy and sell in the same day, what’s so hard about that?” you wouldn’t be wrong. The concept is easy enough to understand but the practice of buying and selling in the same day has it’s limits. The largest obstacle to day trading is Pattern Day Trading rule.
The PDT will limit you to only being able to make 3 day trades within a 5 business day period. This rule will limit the amount of buying and selling that you can do.
How does IT Work?
For day trading to be lucrative, stock volatility is the main driving force. Without volatile stocks that rise and fall 50%+ in a single day, day trading would be just as boring and mundane as long-term investing. Or watching grass grow.
When I say stock volatility I don’t mean unpredictability. I simply that has been some kind of catalyst that is driving a stock price up exponentially. The charts typically look like this:
In the chart above, you can see that BioLineRx Ltd. was trading around $1.60 but around 7:18 a.m.. A catalyst occurred that made the stock price spike all the way up to $2.45 by 7:22 a.m. That is over 40 percent gains in under 5 minutes!
That moment in time, that instantaneous climb, is what dreams are made of for Day Traders. When you catch those kind of movements it’s possible to make 20, 30, 40% gains in a matter of minutes!
Before you get started make sure you read our Quick Guide To Day Trading!