How Day Trading Works
Day trading is a complicated endeavor that a lot of people can get very excited about from time to time. For the most part, the activity that most people refer to as “day trading” is actually a complex system of technical analysis. Day trading is, in the end, centered around being able to learn and recognize patterns, and act on them accordingly.
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Stock prices do not fluctuate in a completely random way. Especially with certain types of stocks, patterns emerge when observed over a long enough period. For day trading stocks, these patterns can exist in long cycles, or happen many times within a single day. The key is to learn to recognize and predict the behavior of the market.
A good example would be a reversal pattern, or a pattern in a stock price which signals that an earlier trend in the price will reverse in order to complete the pattern. There are many examples of this, and it can be a headache to break down all the chart patterns that go into predicting stock prices for day trading. But understanding these pattern is an essential step of becoming a day trader.
The Benefits Of The Day Trading Approach
When day trading, there are a few distinct advantages that you can identify compared to other types of trading. Familiarizing yourself with these advantages and learning to use them to the best of your ability is essential to becoming an effective day trader:
- Day trading requires little to no background information. Because you will be buying and selling within the same trading day, there is less need for you to educate yourself on the stocks you are buying. Obviously, you will need to make sure you have some understanding of the stock, but the patterns in trade prices are really what you want to seek.
- You can use one method for all companies and assets. Because you will always be performing the same kinds of trades within a small time period, using the same tactics between two different companies can be very effective, compared to other types of trading where you must adapt your strategy to deal with different companies and assets.
· Day trading is mostly mathematical and analytical. Since day trading is based mainly on pattern recognition an critical analysis, it is easy to make sense of the data using mathematics and common sense, rather than the kind of complicated thinking that goes into other types of investment and trading.
Some Argue That Day Trading Doesn’t Work
A lot of people say that day trading is ineffective, and that it mostly consists of random luck. Although day trading is very much a game of predicting whether you will win or lose within a short time frame, the rate of success can be quite erratic, even for experienced traders.
Most traders or investors don’t beat the S&P 500 index, which is a commonly used benchmark for financial performance. Even experienced traders can go through long losing streaks, and it’s almost impossible to predict these kinds of things with any reliability. If you approach day trading with the right mindset and skills, there’s no reason you can’t succeed.
Meir Barak is a perfect example. He has a historically proven average success rate of 68%. That’s easy to follow as he posts all his trades live. That is high compared with a lot of other traders. That success rate has allowed him to day trade for a living (read more about it in Meir’s book). Although this kind of endeavor can be nerve-wracking, Meir Barak proves that it is not only possible, but something you can work towards with a good deal of confidence.
Tradenet’s Trading Room
Tradenet offers access to a live trading room for its students. Looking in on experienced traders like Meir Barak demonstrate practical knowledge of day trading gives you an inside look at how day trading works and shows you the kinds of tactics and strategies you will be learning when you trade. You can also ask questions and get tips from some of the best traders out in the world.
If you apply now for Tradenet’s 14-day free trial, you can check out the trading room and see for yourself how day trading works up-close and personal.