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Day Trading. Most people have heard that term before, and it is usually followed with some form of negative comment or reaction.

So, what is day trading and is it as bad as people say it is?

After trading the markets for over 11 years, I thought I’d set the record straight and not only dispel some of the negative information out there, but also help folks to better understand exactly what day trading is and how they can get started if they so choose. My hope is that this article will get people to think more rationally about this very serious business rather than simply listening to erroneous commentary from TV or internet pundits, which leads to a great deal of misinformation.

Before we get started, please understand that any form of trading or investing can be risky and it’s possible to lose money. The comments made in this article are only my personal opinions and not meant to be construed as financial advice.

The term ‘Day Trading’ is very broad, and can also be referred to as ‘intra-day trading,’ ‘scalp trading,’ or ‘micro trading.’ Though slightly different in their approach, all of these terms are used to describe someone who enters and exits trades relatively quickly. This typically means ‘minutes’ or ‘hours’ rather than days, weeks or even years, which is what the ‘average’ investor is typically used to.

There are longer forms of ‘trading’ such as ‘Swing Trading’ or ‘Core Trading.’ The only difference is the timeline. Day traders are in and out many times a day, whereas a Swing or Core trader will hold their positions for much longer periods of time, sometimes even years, similar to the average fundamental based long term investor. Most day traders use a process called ‘technical analysis’ to choose the stocks they are looking to buy, whereas the average investor primarily uses fundamental analysis, which we’ll talk about in a bit.

DAY TRADING. THE BASICS.

There is a lot of talk that day trading is no different than gambling. Nothing could be farther from the truth. In actuality, ‘proper investing’ is more akin to gambling than trading is. Let me explain.

Technical analysis trading is based on the use of specific chart patterns tested over long periods of time that increase our probabilities of making money, and to make these probabilities work in our favor we must be CONSISTENT with our approach. The reason trading gets a bad name and is often likened to gambling is because many so called traders are NOT consistent in their approach. They take random trades, with random levels of risk and have no real edge. A professional trader always has specific patterns they trade with very detailed risk and money management which leads to a positive expectance, which leads to making money consistently. This is how we gain our edge over the market.