"The Thrills and Spills of Day Trading Stocks"

Neil A Costa

The term 'day trader' is now a term that many members of the public are familiar with. This was not always the case.

For more than a decade a relatively small number of professional traders would sit in front of their 'live' screens (computers which plot charts of a stock's movements almost immediately after a trade takes place) and trade market moves which occur during the course of the day. These traders were, in the main, experienced and skilled - many were professionals who learnt their trade while they were market analysts or stockbrokers. They had a trading method and they stuck to their plan.

During the last four years, however, more and more amateurs joined the ranks of the day traders. These people were attracted by the glamourous image of day trading. Newspaper and television coverage of the so-called easy money made by day traders attracted the attention of many people. The fact that these people could be their own boss and work from home was a bonus.

Some people resigned from secure, well-paid positions in order to chase the good life of a day trader. They felt that day trading was exciting - a constant battle between the trader and the market.

• The decline in price of live data.
• The increased volatility in many markets, thus giving traders the opportunity to profit from the larger daily fluctuations in the market.
• The fact that a trader can open an account with a stockbroker and trade with quite large sums of money, without having to put money in a trading account. (This is because traders are not required to pay for shares purchased if the shares are sold within three days of purchase.)
• Given that a day trader buys and sells shares on the same day, a day trader is not exposed to overnight risk, such as a savage move in the wrong direction on Wall Street.

Just How Successful Are Day Traders

Reports from both the United States and Australia suggest that fewer than 10 percent of people make consistent profits day trading stocks. The vast majority of day traders lose.

The Keys to Success

Despite the odds against you, if you wish to day trade, please take note of the following. The items on this list relate to all traders to some extent - not just to day traders:

• Gather as much information about day trading, from reputable sources, as you can.<
  
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• Set yourself up as a professional day trader. You will need a fast computer and a reliable source of live data. Both can be expensive.
  
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• Obtain or develop (if you have the know-how) a proven day trading system. Your trading rules should be incorporated into a written trading plan, and should be so easy to follow that an experienced trader can trade the system on your behalf. These rules should include how much money you will place in your trading account, and what proportion of your trading account you will be willing to risk on each trade.
  
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• Open an account with a reputable broker who charges brokerage rates on the lower end of the scale. Remember, if you use a discount broker, you have chosen to use a broker who will probably not be able to give you the benefit of his or her knowledge, act as a steadying influence, or take stop-loss orders.
  
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• Deposit trading capital into your trading account. Make sure that if you were to lose all of this money, it would not adversely affect your, or your family's, lifestyle.
  
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• Plan for the unexpected. What would you do if a stock were suspended? (When trading recommences, it may trade at a very unfavourable price.) What do you do if your computer crashes or your phone is suddenly out of order?
  
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• If you place orders via the Internet, be extremely careful with what you do. Once extra click on a mouse can double the size of your position.
  
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• Keep accurate paper records. Computer crashes, while not common, do occur.
  
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• Check all records received from your broker against your own records to ensure that they are accurate.
  
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• Make contingency plans with your broker so that any open positions are automatically closed out either when your stop is hit, or when the trading day ends, whichever comes first.
  
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• Be very careful with passwords. A broker will not know if you, or your child, is trading your account if your orders are placed electronically.
  
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• Paper trade your system until such time as your can implement it automatically.
  
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• Understand that day trading is stressful. You will have to make quick decisions while the market is actually trading.
  
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• Before trading with real money, ensure that you know precisely how you will word your order to your broker. Terms like 'at best', 'at market' and 'limit' have specific meanings.
  
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• Don't give up your day job - at least not until you have proven to yourself that you have the temperament and discipline required to succeed at day trading. (Taking some recreation leave from your employment may be a low risk way to discover if day trading is really for you.)/li>

Finally, if you are really determined to try your hand at day trading, then do so. You will be a better trader for it, even if you decide at a later date that it is not something you wish to continue doing.

"For more information on how you can maximize your trading profits while strictly controlling your risk, click here..."