Day Trading: What is it?
I first got involved in day trading after hearing my father describe his own trades and future potential profits. It sounded almost too good to be true, and the truth is that for some people, it is.
When you get down to what defines the practice of day trading, many will tell you it’s just buying and selling a security during a single trading day. But it’s so much bigger than that!
When someone day trades, they are accomplishing two necessary functions in the marketplace. The first is ensuring the market runs efficiently (arbitrage). The second is the amount of liquidity (most often in the stock market) they provide.
There’s strategies and tactics involved, groups who meet together to discuss future market trends, even computer-programmed trading robots making trades based on raw data and much more!
Learn more about the basics of day trading by CLICKING HERE.
Let’s move forward with what causes the strange connotation surrounding the term “day trading.”
Isn’t day trading just gambling?
The funny thing about day trading is how many people are immediately turned off of it by simple gossip. Debates on the practice have and will always be there. Some people think it’s unethical, others, that it’s not a real means of continuing income.
But after all the dust settles and you see it for what it really is, you realize how beneficial it could be to countless amounts of people. Millions (literally) of people have made money in day trading. Millions have lost money the same way. But have you noticed you seem to only hear the negative side of things?
Why isn’t there a Yelp-style review website or app for day trading companies and programs?
I think about day trading like I think about any type of review I read online. Say I want to go out to dinner one night, but want to be sure I find the best restaurant. What steps am I going to take to ensure I have a good experience?
My first thought would be to open up an app like Yelp and find the best rated restaurant in the area. But the problem is that people only leave reviews on these apps and websites when they’re angry. This causes skewed review data, which can lead to a poor dinner choice if you’re not careful.
How do you avoid this issue? Go with what you know. Take the necessary time for trial and error. Find the system that is right for you. It may take longer than you’d like, but I promise it will be worth it in the end.
One of the first steps in day trading is to learn these basic day trading terms…
The following 15 day trading terms will help you hold your own in any conversation that surrounds day trading:
- When a day trader says “buy,” it means getting into a trade at its low point and waiting for the market to increase.
- When a day trader says “sell,” it means getting into a trade at its high point and waiting for the market to decrease.
- A charting icon that shows the open, close, high and low points of a specific market during a specific period of time.
- Buying stock shares with the intention of selling them in the same day and taking the small profit from the transaction.
- Short for Foreign Exchange
- This is the market in which foreign currencies are exchanged.
- Largest, most liquid market in the world.
- Financial contracts which obligate the buyer/seller to purchase/sell the asset at a future, predetermined day and time.
Gap Up/Gap Down
- When a stock opens at a higher or lower price point than when it last closed.
- One of the most common terms used in day trading.
- Short for point in percentage.
- Measurement unit which shows the amount of change in a currency pair found in the foreign exchange market.
When a day trader refers to their profit, they are referring to the amount of increase within a financial account created by different trades.
Day Trading Term Tip
If a trader has $10,000 in a trading account, but after making a trade has $12,000, the profit is equal to $2,000.
When a day trader refers to their loss, they are referring to the amount of decrease within a financial account created by different trades.
Day Trading Term Tip
If a trader has $10,000 in a trading account, but after making a trade has $5,000, the loss is equal to $5,000.
- Level of price in which buyers are overpowered by sellers, making if tough for the market to cross over.
- A style of day trading in which the trader takes advantage of very small changes in price within the market.
- Selling un-owned stock shares hoping to buy them back at a lower price point.
- Bid and Ask price difference.
- Level of price in which sellers are overpowered by buyers, making if tough for the market to cross over.
The general direction in which a market has moved in a certain period of time.
An “Uptrend” occurs when the market has been generally increasing over time.
A “Downtrend” occurs when the market has been generally decreasing over time (see below).
- Number of stock shares that have been traded during a specific amount of time.