Image by: US Navy
By Steven Morrison II
You’ve heard the term before, maybe at a dinner party. You’ve seen talking heads blabbing on about it on CNBC or FOX Business. But what is “day trading” really, and how can you get in on the action?
Day trading is the art of buying and selling – on a single, solitary day – securities or other financial instruments. A person who plays this game with the goal of securing a profit before the markets close is called a “day trader,” or, in some circles, an “active trader.”
The big buzz word here is speculation, which is what these nimble buyers and sellers are really up to. They are making (hopefully) well-researched predictions which way they think that the financial wind will blow for that particular stock, currency or commodity. They then buy and sell throughout the day, betting with a portion of their portfolios that they are right, hoping to turn a profit.
The U.S. Securities and Exchange Commission (SEC) warns those who want to dive into the deep end to quickly, reminding consumers looking to dabble in day trading that it is “extremely risky and can result in substantial financial losses in a very short period of time.”
Meaning you could lose your shirt if you don’t know what you are doing.
OK, so know you know what it is and that you need to be very aware of the possible dangers that lurk below. But where do you start?
First you need to do a lot of reading, watching and listening before you can fully understand this highly complex form of investing. Information is available online and at traditional brick and mortar book stores in a variety of forms including video, books, ebooks, podcasts, etc. Actually, the SEC website is a good place to start cracking open some how-to guides so that you can learn the ropes. Check out Day Trading: Your Dollars at Risk and Tips for Online Investing: What You Need to Know About Trading In Fast-Moving Markets before even thinking about buying or selling anything.
Additionally, a myriad of “experts” offer their own webinars and ebooks offering tips and strategies. Some are good and quite informative, while others are simply scams offering worthless get rich quick-type advice for a hefty sum. What? Some people in the financial sector are shady? Imagine that.
Just remember that there is no sure-fire shortcut to scoring piles of greenbacks and a new Porsche, so take what these top guns say with a grain of salt. If that dude really had a magic formula do you think he or she would spend his valuable time and effort to publishing an ebook about it? If I was such a success, I would be making money, not hawking how-to guides at $10 a pop.
Sure, some get it right away – but truly successful day traders follow certain rules and really know the ins and outs of what is basically gambling on the stock market. The more you know going in, the better chance you have of keeping that shirt on your back and not having to move back in with your parents.
After you’ve gotten an understanding of what is going on, it is time to practice trading before putting actual money on the line. A good place for this is www.top10traders.com, a site that lets simulate real trading using “play” money before you put your portfolio at risk. You also get to see what others are doing and the kind of trades they make, ever broadening your knowledge base before you go pro.
Go forth and prosper.
Next time we’ll look at the various options when you are ready to start trading.