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Day trading, also known as intraday trading, is a speculative type of short-term investing. It essentially means the buying and selling of financial instruments over a short period of time. Typically, this is within 24 hours. The main objectives are discovering and leveraging short-term market inefficiencies.
In order to generate profits, you rely on share price volatility either due to company-specific news or general market sentiment. Day traders typically prefer shares with high liquidity. An example of this is FTSE 100 shares. This enables you to buy and sell shares quickly due to the higher number of shares in circulation, as well as reducing the risk of their trades affecting the share price.
It’s exponential rise in the UK is attributed to the widespread liberalisation of online trading platforms. At one time, it was limited to brokers, bankers, or financial marketers. However, these days the internet and online marketplaces have made it possible for anybody to get involved.
But the harsh reality is that most traders lose money. The most commonly used trading related statistic on the internet is that “95% of all traders fail”. That said no research paper actually exists that proves this number is correct. In fact, research suggests that the actual figure is actually considerably higher!
Check out this Reddit thread about whether it’s a lucrative investment (or not!).
Day Trading at a Glance
- Thanks to advances in mobile technology you can trade from anywhere.
- Mindset is key. You’ll need to be on the ball and have the ability to make decisions fast. You will also need discipline and not let your emotions get in the way.
- You’ll incur higher trading costs but the potential profit opportunities are huge.
- It’s essential to develop and follow a well-defined trading plan and risk management rules.
- There are two primary methods we use to research and analyse securities and make investment decisions: fundamental analysis and technical analysis.
- Even though many traders focus on technical trading, fundamentals also play an important role in the short-term. Technical analysis involves analysing price charts, such as candlestick charts. In fundamental analysis, you evaluate a security by using economic, financial, qualitative and quantitative factors to determine its intrinsic value.
- You’ll need to keep up to speed on major market news and reports during the day. It’s not unusual for financial instruments to move hundreds of points in a matter of seconds by an uncexpted news announcement.
- Technical analysis is a skill that takes a long time to learn, apply, and refine. It’s impossible to predict the market with 100% accuracy. However, good technical analysts can remain consistently profitable by applying a combination of analysis and risk mitigation.
How to Get Started
It’s best to focus on one market first and develop a strategy. Popular markets include shares, indices and Forex.
Five popular strategies include: trend trading, swing trading, scalping, mean reversion and money flows.
If you’re a beginner, it would be sensible to consider virtual trading before you start shelling out real cash!
Cryptocurrency Trading
The UK cryptocurrency trading scene is an exciting, multi-billion pound industry. Cryptocurrency trading involves buying and selling digital currency pairs with the view of making a profit. In order to make money, you need to sell a cryptocurrency ‘pair’ for more than you initially paid.
What is Alpha?
Alpha refers to the return generated separately to the underlying ‘expected return’ of the stock market (which is known as beta). In other words, alpha is your trading profit or loss in excess of the average market return.
It’s the only element of return which rewards the trader for their efforts so it’s essentially their salary, after deducting trading costs and other fees.
Popularity Surge since Covid-19
According to a survey carried out by investment company GraniteShares, nearly 1.8 million Brits became day traders during the pandemic. Of these, over half said they’d made money, while 22% had suffered losses.
Meme Stock Revolution Makes Headline News!
In 2021 the ‘meme stock revolution’ became headline news. The expansion of zero-commission trading platforms and investing communities on social media forums fuelled trading in so-called meme stocks such as GameStop and AMC. Keith Gill became the face of the revolution. He made tens of millions and created a cult following through his “Roaring Kitty” and “DeepF***ingValue” personas on YouTube and Reddit’s WallStreetBest forum. The Reddit traders used no-cost trading platforms, like Robinhood Markets, and the activity took a toll on some Wall Street heavyweights, with Gabe Plotkin’s Melvin Capital eventually winding down.
What is Social Trading?
Keeping track of all this isn’t easy which is why some people favour social trading. This is a form of dealing that enables traders or investors to copy and execute the strategies of more experienced traders. While most traders perform their own fundamental and technical analysis, some traders prefer to observe and replicate the analysis of others.
Platforms like Investoo mean that you can take advantage of modern social trading. Essentially, you’re part of a network where people share trading ideas. You can interact with other traders, watch results with other traders and brainstorm market activities in real time.
Social trading could very well be the next big thing in the future for cryptocurrency and traditional market trading.
Advantages & Disadvantages of Day Trading
Advantages:
- You can do it anywhere – you only need a laptop and internet connection
- It can be extremely lucrative – once you have mastered it!
- You can choose from many markets – find one that fits your trading strategy, risk profile and obviously working hours.
- Minimal day-to-day risks – as you’re in and out of trades relatively fast.
Disadvantages:
- It requires a lot of time – if youwant to make a decent amount of money, then you need to put in the hours.
- It involves risk of losing money – which isn’t usually the case with a regular job. However, the benefits may considerably outweigh the risks.
- It can become addictive – in fact The Times recently wrote an article about how it’s is ruining lives of middle class gambling addicts!
Getting Started
Before you begin, you should:
- Research the markets
- Decide on a trading strategy –
- Open a demo/ live account
For a deeper dive, check out Shifting Shares.
