Day Trading 

If you are at this page you probably are already aware of, or are currently day trading. Day Trading is not for everyone, the lure of “quick and easy” money is truly a sirens song. Day Trading requires all the attributes “regular” traders need, if not more discipline and patience to wait for your specific entry trigger.

Common Sense Capital can provide the Day Trader with the right tools to accomplish their task. Please see our on-line trading page for a list of available platforms. ( link underlined)

Day trading refers to the practice of buying and selling financial instruments within the same trading day such that all positions are usually (but not necessarily always) closed before the market close of the trading day. This is different from after-hours trading.

The most commonly day-traded markets are the e-mini stock indices, the S&P, the Russell and the Nasdaq. However, day traders are also very active in most all markets including the currency, energy and even the grain markets.

Day trading used to be the preserve of financial firms and professionals. However, day trading has become increasingly popular among casual speculative traders due to advances in technology, changes in legislation, and the popularity of the Internet.

Trade Frequency

Although collectively called day trading, there are many sub-trading styles within day trading. A day trader is actively searching for potential trading setups, which in the judgment of the day trader, is ready to move in price with a potential for a profit. Depending on one's trading system strategy, the number of trades the trader can make a day may vary from none to dozens.

Some day trader’s focus on very short-term trading within the trading day, in which a trade may last seconds to a few minutes. Day traders may buy and sell many times in a trading day.

Some day traders focus only on price momentum, others on trend patterns, and still others on an unlimited number of strategies they feel are profitable.

Day traders usually always exit positions before the market closes to avoid any and all unmanageable risks - negative price gaps (differences between the previous day's close and the next day's open price) at the open - overnight price movements against the position held. Some traders believe they should let the profits run, so they may stay with a position after the market closes.

Day traders receive a margin break. Since margin interests are typically only charged on overnight balances.

Profit and Risks

Because of the nature of financial leverage and the rapid returns that are possible, day trading can be either extremely profitable or extremely unprofitable.

Day trading can be very risky, especially if any of the following is present while trading:

• Trading a loser's strategy/system rather than a strategy/system that's at least winnable,
• Trading with poor discipline (ignoring your own day trading strategy, tactics, rules),
• Inadequate risk capital with the accompanying excess stress of having to "survive",
• Incompetent money management (i.e. executing trades poorly).

Techniques

The following are several basic strategies by which most day traders attempt to make profits. Besides these, some day traders also use contrarian (reverse) strategies to trade specifically against irrational behavior from day traders using these approaches.

Trend Following

Trend following, a strategy used in all trading time-frames, assumes that markets which have been rising steadily will continue to rise, and vice versa with falling. The trend follower buys an instrument which has been rising, or short-sells a falling one, in the expectation that the trend will continue.

Contrarian

Contrarian trading is a market timing strategy used in all trading time-frames. It assumes that markets which have been rising steadily will reverse and start to fall, and vice versa with falling. The contrarian trader buys an instrument which has been falling, or short-sells a rising one, in the expectation that the trend will change.

Range Trading

Range trading is a trading style in which stocks are watched that have either been rising off a support price or falling off a resistance price. That is, every time the market hits a high, it falls back to the low, and vice versa. Such a market is said to be "trading in a range", which is the opposite of trending. The range trader therefore buys the stock at or near the low price, and sells at the high. A related approach to range trading is looking for moves outside of an established range, called a breakout (price moves up) or a breakdown (price moves down), and assume that once the range has been broken prices will continue in that direction for some time.

Scalping

Scalping refers to jumping in and out of the market very quickly for maybe only a few tics of profit (or loss), usually within minutes or even seconds.

Scalping highly liquid instruments involves taking quick profits while minimizing risk (loss exposure). It applies technical analysis concepts such as over/under-bought, support and resistance zones as well as trend line, trading channel to enter the market at key points and take quick profits from small moves. The basic idea of scalping is to exploit the inefficiency of the market when volatility increases and the trading range expands.

News Playing

News playing is primarily the realm of the day trader. The basic strategy is to buy a market which has just announced good news, or sell on bad news. Such events provide enormous volatility in a market and therefore the greatest chance for quick profits (or losses). Determining whether news is "good" or "bad" must be determined by the price action of the market, because the market reaction may not match the tone of the news itself. The most common cause for this is when rumors or estimates of the event (like those issued by market and industry analysts) were already circulated before the official release, and prices have already moved in anticipation---the news is already priced in the stock.

Regulations and Restrictions

Day trading is considered a risky trading style, and regulations require brokerage firms to ask whether the clients understand the risks of day trading and whether they have prior trading experience before entering the market.