If you are considering trying your hand at intraday trading, you have many options available to you. You must choose whether to trade stocks, commodities or futures. Some day traders work in extremely short time periods – even down to minutes. And you must also choose what strategy you will use to trade. Intraday trading is risky, so make your decisions carefully.
Trading on the News
Stock prices are affected by economic conditions as well as news about a company and the industry in which it operates. If you track the news, you may find opportunities to profit with intraday trading. Some events, such as earnings announcements, are anticipated well in advance and offer the best chance for an intraday trading profit if the actual figure is out of line with what was anticipated. Other news could be harder to locate, so follow blogs and read articles in trade journals and online postings. Watch to see what insiders do – insider transactions can give you a heads-up about future price movements.
If a stock shows steady movement in a long-term trend, you can possibly earn intraday profits by trading the fluctuations that occur around the underlying trend. You can profit from trends going in either direction, buying or shorting a stock depending on the direction of the movement. Look for technical indicators to confirm the existence of the trend. Moving averages, trading volume, MACD (moving average convergence/divergence) and other indicators can confirm that the trend is intact or that it is decaying. When you trade, wait a short while to make your first trade of the day to be sure the trends you anticipate begin the way you forecast.
Some stocks fall into a pattern of trading in a well-defined range. When the price reaches a resistance level, sellers enter the market and outnumber the buyers, causing the price to drop. And when the price falls to the support level, buyers step in, outnumbering the sellers and driving the price back up. With the price bouncing back and forth between resistance and support, you can make profitable day trades if you can time your transactions well. Be prepared for breakouts, which can occur if the price breaks through the resistance or support levels and starts a new trend.
Know Your Risks
Before you start your day trading career, consider the risks involved. Approach what you do with a plan and do not be distracted from it. The Securities and Exchange Commission warns that most day traders lose money in their first months of trading, and many never become profitable. To maximize your profits you will need to open a margin account. That can leverage your profits, but it can also leverage your losses. Never trade more than you can afford to lose. While there are many newsletters and seminars offering hot tips for day traders, the SEC urges caution. Deal only with reputable brokers, and if you have questions about them, get more information by calling the North American Securities Administrators Association at (202) 737-0900 or visiting its website at www.nasaa.org/about-us/contact-us/contact-your-regulator.
Thomas Metcalf has worked as an economist, stockbroker and technology salesman. A writer since 1997, he has written a monthly column for "Life Association News," authored several books and contributed to national publications such as the History Channel's "HISTORY Magazine." Metcalf holds a master's degree in economics from Tufts University.