Stock Market Day Trading
Stock market day trading is largely the province of speculators in search of intraday trading profits. In stock market day trading one needs to close all open positions before the market closes in order to avoid uncontrolled situations. In stock market day trading one typically uses statistically based technical analysis in order to let the market predict where it is going next. Day traders may only hold a position or a minute or even a few seconds in order to profit from very short term market fluctuations. This is not the province of fundamental analysis but rather the reading of market sentiment. Active traders in stock market day trading often receive discounts from brokers for their frequent market making trades. Why would one choose stock market day trading over other approaches to making money in the markets?
Where the Money Is
The not too successful bank robber Willy Sutton was asked why he continued to rob banks. He said, that is where the money is! Consider a stock of XYZ Corp. Between 2000 and 2010 it doubles in value. It pays no dividends so a buy and hold approach would net the investor a hundred percent profit in a decade. Now let us consider the same stock buy looking at a stock chart for any given trading day. And let us suppose that during a given trading day on the average XYZ goes up and down by one percent. There are about 250 trading days a year. That means that there is the potential for a 250 profit for the year on the same stock if one traded it each day, just once to buy and once to sell. Now let us look at XYZ and every little up and down throughout the trading day. Let us suppose that the sum of all ups to downs and downs to ups is equal to the value of the stock. That means that one could in theory make a 100 percent profit every trading day and a 250 fold profit each year and a twenty-five thousand fold profit in a decade. Thus stock market day trading is where the money is in the stock market. Traders follow statistically based trading cues and always set their trading stops. Whether one is scalping the market, trend trading, or taking a contrarian approach to an overextended market, stock market day trading can be much more profitable than simply buying and holding a stock. Stock market day trading obviously does not result in profits on every up and down on a stock chart but it can be much more profitable than simply buying and holding a stock.