Don't get me wrong--there's certainly ways to make money day trading there, but hear me out before I give you five benefits of day trading.
First, getting up at 3:30 AM in Hawaii is not my idea of Paradise. It interrupts my excellent dream life, and I am somewhat cranky all day.
Next, there is no correlation between the amount of time you spend in front of a computer and how much profit you make. Most traders tend to overtrade, and that means more commission costs. A few well-chosen trades, entered at the right time, is better than buying everything in sight.
Third, day trading is too short a focus to consistently correct decisions and have a margin for error in case you are wrong. At the very least, if the market goes against you, you are stuck there all day until you can break even or better. Better start learning to pray!
Fourthly, I will rank the results of a decent options trader against a day trader of stock any time. Options traders using weekly and months typically return a consistent 5-10% per month, and can double their money in a year. You can't argue against consistent results.
Thanks for listening to my rant! Now I also have something good to say about day trading.
Knowing certain things about daily trading patterns is very helpful. These include the opening 15 minutes rotation, the regular volume spike and semi-circular price pattern reflecting the clearing of overnight orders. Volatility can be higher than normal, and that is good for options sellers. New positions have a good chance of being filled at the open, so option sellers should ask for a little more credit, especially on Bull Put Credit spreads. You might make enough to close the trade that day for nice profit! In the first hour or so, the stock will often hit the high or low of the day, then back off. Unless news shakes the markets, a quieter market prevails until NY traders return from lunch. Sometimes it appears as if trades lunch together, plan out the rest of the day, and then head for a new direction on their return around 1 pm (Eastern time). But what really happens is that Market Makers look at the ATR (Average True Range) of a stock, and face resistance when the stock reaches it. Expect a pull back. Anyway, around 15 minutes before the close, volume and volatility pick up strongly as profit-taking sets in. Prices tend to be directional and things get a bit wild until the ding-ding-ding, leaving the day with a black or red candle.
Some traders prefer to trade the close of the day. Evan Madeiros offers four benefits to trading the close only. I'll list them here for you.
- Make fewer, but more quality decisions.
- Buffer against the intraday whipsaw and volatility.
- Save time and allow a life outside of trading.
- Natural enforcer of discipline.
- https://www.thetraderisk.com/why-end-of-day-trading-is-superior/
I like that one about saving time. Truth is, just trading the close gives you just as good results as sitting there all day.
But you need to right trading strategy to do that, such the overnight trade. For that, you choose stocks between $10 and $30 with beta of 1.5 or greater, buy at the close, place GTC limit orders at 3-5% higher, and usually sell next morning. Rinse and repeat. With this strategy you are taking advantage of the two most volatile trading periods of the daily cycle. (Also called the get-in/get-out strategy.) You can also reduce your risk by using options instead of stocks.
Bottom lines: learn day trading techniques, but don't become a screen gazer for 6 1/2 hours per day. Especially if you live West of California. There are, however, many knowledge points and a few decent strategies that require some day trading skills. Most of what you do as a stock trader can be done with much less risk using options.
Graeme
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