A gain or loss is made on the difference between the purchase and sales price.

An effect of this style of day trading is that the shares are never delivered or received.

Day trading is more risky than any other trading activity. It is very common to use margin with day trading (i.e. using borrowed funds) amplifying gains and also amplifying losses. The downside is that substantial losses can occur very quickly.

A common belief is that 80%-90% of day traders lose money. (source http://en.wikipedia.org)

Day trading was once the domain of financial firms and professionals along with experienced traders and speculators. It is now very common amongst everyday traders thanks to the internet.

Day trading is officially called "pattern day trading" and means placing four or more buy and sell orders in one day on a regular basis.

Day traders trade various financial instruments including: shares, options, warrants, foreign exchange and a host of futures contracts.

Day trading evolved with the advent of electronic ordering and discount brokers. The home computer and the internet have made the environment friendly to small day traders.

There are a number of strategies by which day traders attempt to make a profit.

Trend following, a day trading strategy used in all trading time frames, assumes that prices that have been rising steadily will continue to rise, and the same for falling prices. The trend follower buys a share which has been rising or short-sells a falling share, in the expectation that the trend will continue.

Fundamental analysis is one of the biggest tools of the day trader. The basic strategy is to buy a share which has just announced good news, or short-sell a share on bad news.

Technical day trading uses mathematical formulae to decide when a share is going to rise or fall based on previous price action. Many day traders use technical indicators.

You should avoid the following dangers of day trading:

1. Many day traders trade without a plan of any kind as to what to buy and sell and when
2. In many cases a day is simply not long enough to realise the profit of a share
3. Day trading can be very emotional and gut instinct based
4. Much of the fundamental analysis data day traders use is quite delayed and this will mean that by the time it is received and acted on, the rest of the market, especially the stock broking industry, has already taken action
5. Day trading can mean profits are too low to cover fixed costs, such as brokerage
6. Day traders often use leverage which can amplify losses as much as it can amplify gains. For the inexperienced it is a huge risk losing more than you have in your float.

Consider An Alternative

If you'd like to investigate the alternative to day trading, come along to one of our FREE Introductory classes. Come and talk to a reputable, reliable Australian trainer about what is possible for you.

Classes are conducted weekly in training centres around Australia.

HomeTrader can answer all your questions about becoming a share trader.

This is what we’ll cover in the sessions:

• The elements vital to making money on the stock market
• How to make money in a raising and falling market
• How certain trading strategies force you to profit
• Mistakes to avoid and why beginners often fail
• Why investing in blue chip shares may not be the best approach
• Actual returns traders have received and show you how they made them - HomeTrader members who’ve made 50%* or even 100%* in periods as short as three months
• The importance of knowing how to develop risk management to minimise losses
• Questions from the floor

*past performance is not a reliable indicator of future performance

Click here to check for the next free class in your area.