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Day Trading Strategies What Works?

By Charles Hopkins Published 03/13/2006 | Finance

Day trading is a trading strategy where investors buy and sell a stock in the same trading day. That is, you will not hold a stock overnight because you are always in and out of positions within the day.

Day traders buy and sell stocks very fast over the day in the hope that their stocks will continue climbing or falling in value for the short duration during which they own the stock, enabling them to grab quick profits. Day traders usually work with borrowed money, with the expectation that they will reap higher profits through leverage, and at the same time they bear the risk of greater losses too.

To look for tips on what works, you have to look into the negatives and take precautions against them.

As day traders are usually the fast buck type of guys, they often have a tendency to get swayed by tall talks from advertisers. This is where serious pitfalls keep looming. It is never a wise thing to believe in advertising claims that promise quick and sure profits from day trading.

Before starting day trading with a firm, you must gather hard statistics on how many clients have actually lost or made profits dealing with them. If the firm does not have this information, or refuses to give it to you, take a pause because you are in for extreme risks through ignorance.

Secondly, some websites claim to have earned good money from day traders by providing them hot tips and stock picks for a fee. Once again, don't take them at face value. Sounds that trumpet easy profits from day trading are often disastrously misleading. Check out these sources thoroughly before you take them on your side if you will.

It will be wise to check out day trading firms with your state securities regulator. As it is with all broker-dealers, day trading firms have to register with the SEC and the states in which they operate. Confirm the registration of the firms under your focus by calling your state securities regulator. Find out whether the firms have records of troubles with regulators or their customers.

Any day trader should be able to read ahead how much they need to make to cover expenses and break even. As this type of business is extremely risky, most investors often lack the time, wealth or the endurance necessary for making money along this line. Anybody intending to plunge in has to be prepared from the very beginning.

Day traders have to pay for the computer time and for the tips and advice from the day trading firms. The firms start earning the moment you enter but you are likely to end up losing unless you yourself watch out against the risks.

You may want to ride the momentum of the stock and get out of the stock before it changes course. But you do not know for certain how the stock will move. It is a freaky thing, and you have to be on continuous alert. It is often better to pick a mixed strategy of waiting till your earning increases by a certain multiple of your investment, and terminating whenever a reverse turn starts in the stock price.

To move out within seconds is another strategy you may follow, though even that short interval may generate huge amounts of money had you chosen the right stocks and the right length of interval. The best way to make it work is to work everything out for yourself in the painstaking old-fashioned way, instead of putting your sole trust in the day trading firms.