If the thought of day trading seems attractive, it is nevertheless necessary to surround oneself with precautions before embarking on this type of adventure. In the United States, broker statistics show that 90% of day traders lose money. This article will try to give a panorama of the basic rules and answer any questions that people may.
When day trading stocks, every minute counts. The impossibility of placing an order can be expensive, especially in cases dealing with high market volatility. Similarly, if the transfer of one order to the “books” takes 5 minutes, it is unlikely that it will be executed in the conditions in which a person had previously decided just minutes before.
Conditions to be met
Two conditions must be met if a trader wishes to be successful: liquidity and volatility must be high. Liquidity is defined by the number of exchanges that take place each day of a security, values like Alcatel or Canon. Several million of these shares are exchanged each day, which enables traders to return or leave the stock at any time, mainly because there is always a counterpart ready to buy back or sell those shares.
Securities with high liquidity are few in smaller stock markets (San Francisco or Paris), apart from the larger markets (New York and Chicago, etc.). Traders can find some awesome trades in other markets but they are quite rare.
Which stocks to turn to
If a person wishes to start day trading stocks, the top liquidity realm remains primarily in the United States (with the flagship trades of the Dow Jones or the Nasdaq). Similarly, futures represent a very good alternative, these derivatives also offer a considerable leverage. These markets offer many opportunities to trade online.
Lastly, significant volatility on the trades worked is the second important condition to never ignore. Any trade is said to be volatile when the variations it registers during the day is important (more than 5%). A reliable and knowledgeable day trader will look for these values, including any variations that must be large enough to allow for profits (that is, once brokerage fees are deducted). To learn about Rockwell Trading, click here.